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Wherefore art thou, B shares?

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Feb 25, 2009 2:31 am

Hey folks. Awhile ago Franklin Templeton did away with B shares. American Funds is doing it soon too. I'd like to hear your thoughts as to why? I don't use them often, but there are times when I believe they make sense. This leaves commission-based accounts to A's and C's. As a side note, C-shares have been under fire for years.  Anyway, your thoughts are appreciated.

Oh, and let's not turn this into a "commissions-based accounts suck, you should do managed money blah blah blah." Let's just stick to the question. As always, thanks for your input.             -Renter                                                                                                                                                                                                                              
Feb 25, 2009 2:34 am

Please list a situation when you feel a B share is appropriate.

Feb 25, 2009 2:54 am

Well Sam, even though you're already doing a poor job of answering my question, how about: After I've presented each option (yes, I do), disclosed the higher expense (yes, I do), 6yr CDSC, and leave it up to the client, and that's what they choose. I've done this long enough to realize that sometimes B-shares might make sense to some people, so stop with the 'luring me into an argument' thing already.  Just like some people choose GM cars or Ford or Toyota or whatever. Surely, you're not going to make sweeping generalizations like Suze Orman does, are you?

Feb 25, 2009 2:59 am

Young person, small investor, IRA account, wants to see full value on early statements – B shares can be appropriate. That’s the only situation I’ve run into.
I present them because they make A shares look better and get the focus off the upfront commission a little bit.


Feb 25, 2009 3:00 am

I’d like to hear your thoughts as to why?  Regulatory scrutiny.  The VAST majority of the time they where used as an “A” share without have to show the client being down 5% on there first statement.  but there are times when I believe they make sense They make sense or that is what the client wanted. story has changed in one post.  I asked when does a B share make sense as opposed to an A share of C share?

Feb 25, 2009 3:18 am

By golly Sam, I told myself I wouldn't respond to you again, and here I go already.  Story hasn't changed in one post. Here's an example: IF THE CLIENT WANTED THEM, THEY MIGHT MAKE SENSE. Now, please don't hijack my thread; start your own about A/B/C shares. I like bouncing opinions off my peers. I don't like getting pulled into these petty arguments. I just asked for opinions.

Feb 25, 2009 3:22 am

I gave you an opinion.  Care to answer my question?  I am looking to expand my horizons.  Unless of course you can get your pitch past a client but not someone who knows what they are talking about.

Feb 25, 2009 3:34 am

[quote=Renter]

Well Sam, even though you’re already doing a poor job of answering my question, how about: After I’ve presented each option (yes, I do), disclosed the higher expense (yes, I do), 6yr CDSC, and leave it up to the client, and that’s what they choose. I’ve done this long enough to realize that sometimes B-shares might make sense to some people, so stop with the ‘luring me into an argument’ thing already.  Just like some people choose GM cars or Ford or Toyota or whatever. Surely, you’re not going to make sweeping generalizations like Suze Orman does, are you?

[/quote]

You suck.  You should do managed money.

Sorry.  Couldn’t resist.
Feb 25, 2009 3:45 am

The reason American Funds is getting rid of them is because the company that use to pay the upfront commission to brokers is going out of business… And American Funds doesn’t want to pay the upfront and wait 4-5 years to get their money back…

  B shares are a sham...
Feb 25, 2009 3:05 pm

You’re going to have to explain that one to me.  Are you saying that there is a third party that American Funds contracts with to pay me the commission dollars while AMF collect the higher expenses? 

  OR   Are you saying that because American Funds is paying me a commission upfront, but waiting 4-5 years to recoup their costs, there is so much B share business going on that they can't afford to keep their lights on?    I'd love to see B shares go away altogether.  The decision would be made much simpler if there was only a two choice option for paying us.  Commission or Fees.  A or C.  You pick.  The whole B share converting to A shares after 7 years, then adopting the expenses of the A share, but if you sell them in 3 years there's a CDSC thing is really confusing. 
Feb 25, 2009 3:58 pm

[quote=chief123]The reason American Funds is getting rid of them is because the company that use to pay the upfront commission to brokers is going out of business… And American Funds doesn’t want to pay the upfront and wait 4-5 years to get their money back…

  B shares are a sham...[/quote]   Huh?  I assume you mean they have a 3rd party company that they sell their receivable (B-share "recoup") to? 
Feb 25, 2009 4:56 pm

Renter (not owner) - B shares do make sense for trades under $25,000.  However, our bread in today’s world is really buttered by the ‘client’ and not the ‘customer’.  The best strategy for a long term - productive relationship, for everyone - does not come from a B share sale. 

  Also - Suze Orman says that we should not charge commissions to people.   
Feb 25, 2009 5:06 pm

Spaceman, American sent a letter saying that their third party who paid the commisions was no longer available.

Feb 25, 2009 7:01 pm

I don’t read half the mail I get from mutual fund companies.  Especially those prospectus thingies.  It’s a waste of brain cells.  I may have received a letter like that, but my BOA lets them sit in my in box for a while then dumps them.  It possibly could have been there.   

   
Feb 25, 2009 9:06 pm

I heard that this was happening, but like Spiff, I can only read so much fund company mail.  Most of it goes in the trash.  I pretty much keep the annual fund reports and the quarterly updates - everything else goes in the can.

Feb 25, 2009 9:27 pm

[quote=iceco1d][quote=Spaceman Spiff]You’re going to have to explain that one to me.  Are you saying that there is a third party that American Funds contracts with to pay me the commission dollars while AMF collect the higher expenses? 

  OR   Are you saying that because American Funds is paying me a commission upfront, but waiting 4-5 years to recoup their costs, there is so much B share business going on that they can't afford to keep their lights on?    I'd love to see B shares go away altogether.  The decision would be made much simpler if there was only a two choice option for paying us.  Commission or Fees.  A or C.  You pick.  The whole B share converting to A shares after 7 years, then adopting the expenses of the A share, but if you sell them in 3 years there's a CDSC thing is really confusing.  [/quote]   Spiff,   American Funds sent out a letter explaing the situation (if you didn't get it, and everyone else did, perhaps there is some truth to the "sheltering" of EDJ reps).   There is a company that fronts the commish to FAs on B-Shares (basically financing them for Am. Funds), then American collects the higher expenses and pays the "loans" off to this company.
Apparently, this company is exiting this type of business, and there is no reasonable similar company that American can use, so they are not allow B's anymore.    Not sure how they handle the C-share commish, maybe they finance that internally.   I don't even have any American on the books, and I got the letter...[/quote]   Actually, I just went back and saw that Jones published the letter in their Mutual Fund News site on 02/13.  In reading the FAQ's, I get the impression that AMF is trying to bascially push everything to A shares.  They downplayed the use of C shares.  And this was on the AMF website, not in a letter sent just to Jones advisors.
Feb 25, 2009 10:14 pm
American Funds American Balanced Fund Class A American Funds American Balanced Fund Class B Data As Of 2/21/2009 2/24/2009 Ticker Symbol ABALX BALBX Investment Amount $22,000.00 $22,000.00 Estimated Return You Selected 8.08% 8.08% Holding Period 10 10 Fund Value After 10 Year(s) $42,556.98 $42,523.98 Profit/Loss $20,556.98 $20,523.98 Total Fees & Sales Charges $3,025.29 $3,521.73 Total Fees $1,760.29 $3,521.73 Total Sales Charges $1,265.00 $0.00
Feb 25, 2009 10:18 pm

The above scenario was a situation for me, yesterday, when a client chose this B share over the A.  She seemed to really understand it and had liquidated some Blackrock funds so she was fairly well versed.   That calculation was done on FINRA’s site.

  The thing this doesn't account for though, is the B share purchase when made at close to market bottom's could do significantly better over the same 10 years b/c that extra $1200 or so could grow as well.  I just put in 8.08% for both, and the A-share netted $33 more over 10 years.   As long as people understand them, I don't have a problem.  But yeah, I get transfers in where it's obvious people have forgotten or weren't properly educated on what they are.
Feb 25, 2009 10:31 pm

She liquidated out of Blackrock to go into American.  Were those B shares also and if so did she pay a deferred sales charge.  If that is the case then who’s to say she won’t do it again when American Balanced isn’t doing as well as she had hoped. 

Feb 26, 2009 12:07 am

Why would someone liquidate out of Blackrock to go into American? There are plenty of fantastic Blackrock funds to exchange into. I use Blackrock all the time (and I work for American Funds’ Uncle Eddie!)