C Share Future

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Dec 8, 2008 9:31 am

Any thoughts on what the future of C-shares is?  Last year it seemed that a lot of momentum was building to eliminate them (as well as B's), but have not heard much lately.  I put most people under 100-150K into C shares, but I am concerned that it might not be worth it at this point, if the end-game is that they go away.  Has anyone heard any rumblings lately?

Dec 8, 2008 10:29 am

I think C's will go away along with B's. Because essentially C's are mutual funds in a wrap program and I think there will be regulatory pressure that either requires people to have the 65(or 66) and have a certain obligation to meet with clients regarding there portfolios just like there is for a wrap account.

Dec 8, 2008 11:17 am

Hmmmmmm.

I agree that C-shares will probably not "go away".  I tend to think that they will morph into something more like what American Funds does (they convert to A shares after 10 years - actually F shares, but same thing).  But eventually I think the 1% in perpetuity will go away.  However, let's say the industry decides that C shares can be used, but convert after 7 years or 10 years or whatever.  Why on earth would someone want A-shares at that point?  Or maybe they will become a blend between A and C shares - maybe a 65Bip trails instead of 25 or 100 - in perpetuity.  But some firms (notably Merrill) have so much wrapped up in C shares, that it would be difficult to unwind easily.
The downside of all of this is that it will impact smaller clients.  There will be a dis-incentive to work with clients that are too small for advisory programs.
Dec 8, 2008 12:08 pm

"I think C's will go away along with B's. Because essentially C's are mutual funds in a wrap program and I think there will be regulatory pressure that either requires people to have the 65(or 66) and have a certain obligation to meet with clients regarding there portfolios just like there is for a wrap account."

 
I think that you are off by exactly 180 degrees on this one.  The regulatory pressure is just the opposite.  They are not essentially mutual funds in a wrap program and they can't be sold as a substitute for an advisory account.  A "C" share should be sold when someone is working on commission and the investment is meant to be held for a short period of time.    The regulatory pressure already exists and if you don't agree with me, try putting in a ticket for a "C" share for a decent buck and a long time horizon.  Not too long ago, this wasn't an issue. 
Dec 8, 2008 9:27 pm

I dont think this issue has gone away, as the original poster stated, its just on the back burner, with the SEC up to its A** in alligators. It will resurface and i think something will be done.
One thing that might make that happen is this - on average, C share equity funds have probably a 2% ER, give or take. (i know, i know, not American Funds) Next year, the assets in these funds (all shares) will be way down, between market depreciation and clients selling out. No doubt the ER;s will go up as costs are spread over a smaller pool of money. This might put pressure on the fund cos to reduce ER's and one way to do that is lower the trails they pay.
JM2CENTS

Dec 9, 2008 8:37 am

what i would like to see is some sort of reporting which shows, in REAL LIFE, just how long the average mutual fund is held. C shares can get bad press for the cost, but i have been doing this too long to think in the REAL WORLD that clients buy and hold, or let sit, forever. i have no data to support my contention, but i would like to see some numbers before bashing C shares, of which i do plenty of business.



i don't see how the benefits associated with C shares are so terrible when looked at relative to cost.

Dec 9, 2008 9:01 am

Here's my opinion - I can build a far better portfolio with C shares than with A shares.  With A shares I do my best, but unless it's a huge portfolio, I am typically using 2 fund families.  I am usually stuck with American and Franklin (which are both fine), but I have been really gravitating towards the core/satellite approach the past year.  American and Franklin are great for A-share advisors, since they offer a lot of decent funds.  But I like to use several fund families that have one or maybe two great funds, but could never build a complete A share portfolio with (for example First Eagle, Ivy, Loomis Sayles....).  Unfortunately, you are sort of hamstrung when using A shares.


 
I see two major roadblocks to a good resolution: first, most regulators look solely at costs, and ignore performance or asset allocation, etc.  Second, there are a large number of advisors out there that will always take advantage of whatever they can to make more money, regardless of the impact on clients - and they are the one's that get the press for the rest of the industry.
Dec 9, 2008 10:45 am

Why care what will happen to any fund class?  You can't control or guess as to what is going to happen.  Plus if it does...there will be a huge sign that says...hey..C shares will be gone Jan 1st 2013.  Make adjustments and move on.  A win win would be to allow what is in C shares currently to keep paying the trail, with no new additions and eliminate to new money.

Dec 9, 2008 9:27 pm

Well, there's no sense in caring about half the crap we post about on this board - but we are still curious.



I agree, I don't think anyone on this board could possibly have any information that would change how I do business, but you never know.