Can you sell B Shares?

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Jan 2, 2008 12:47 pm

What is your firm's policy on selling B shares?  It seems to me that they have gotten a bad rap.  I want to be able to pick the best funds from any family out there and not be handcuffed in selling all A shares just to meet a stupid break point discount that in the long run means nothing.

Jan 2, 2008 2:19 pm

Remember sometimes C shares are a good way to avoid being as you said 'handcuffed'. Shorter CDSC but you make less money.

 
Miss J
 
*With your statement above- I think we work at the same firm.. So my firms perspective doesn't matter.
Jan 2, 2008 2:55 pm

I know little about our upcoming "mutual fund advisory account," but will it really differ from just selling C shares?

 
I realize there will be no CDSCs with the advisory account, but I don't sell mutual funds to folks who are investing for less than a year anyway. 
 
I've never done it before, but I assume we could put together a portfolio of C shares from a variety of families, couldn't we?
Jan 2, 2008 3:24 pm

We can sell B shares at Jones as long as selling them an A share won't be better for them in the long run.  The official policy is that if an account is eligible for the $100K breakpoint, you have to do A shares.  Most, if not all, of the fund companies won't accept B share orders for more than $100K.  I try to get people to do A shares above the $50K breakpoint.  Below that we discuss them both and let them decide.  Payout is reduced to 35% on B and C shares.  B shares are fine for smaller amounts of money.  They get a bad rap because they are used by brokers to avoid telling someone they are paying commission.   

 
I think the big difference with the advisory account will be the reporting requirements.  Because people will be paying for advice instead of investments there has to be some required reporting of said advice.  I'm going to guess the payout, whatever it is, isn't going to be cut like B or C shares. 
Jan 2, 2008 4:17 pm

At LPL Financial, we can sell B shares and we get the 90% payout--but we are limited to a maximum of $50,000 in B shares---C shares is limited to $999,999 and we still get the 90% payout! 

Jan 2, 2008 4:20 pm
Roadhard:

At LPL Financial, we can sell B shares and we get the 90% payout--but we are limited to a maximum of $50,000 in B shares---C shares is limited to $999,999 and we still get the 90% payout! 

 
Ha Ha.. thanks for pie in the face!
Jan 2, 2008 4:32 pm
MISS JONES:
Roadhard:

At LPL Financial, we can sell B shares and we get the 90% payout--but we are limited to a maximum of $50,000 in B shares---C shares is limited to $999,999 and we still get the 90% payout! 

 
Ha Ha.. thanks for pie in the face!
 
... was that coconut cream or banana cream?...
Jan 2, 2008 4:41 pm
Borker Boy:

I know little about our upcoming "mutual fund advisory account," but will it really differ from just selling C shares?

 
I realize there will be no CDSCs with the advisory account, but I don't sell mutual funds to folks who are investing for less than a year anyway. 
 
I've never done it before, but I assume we could put together a portfolio of C shares from a variety of families, couldn't we?
 
You could, but you're restricting your universe by doing so, as there are a lot of excellent no-load funds, and (I haven't checked) there may well be excellent load funds that don't offer class C shares.  Aside from that, ticket charges could be pretty stiff (for those of you who get charged), particularly if you move money around frequently.  On my fee-based platform, the client generally pays ticket charges, although I have the option to eat them if I choose to.
Jan 2, 2008 5:57 pm

Vbrainy ask Miss Jones, I provide facts!

Jan 2, 2008 7:46 pm

Some good stuff Spaceman.  Thanks.

When you do a study, taking away the upfront money in an A share can be difficult to recover from.  Especially in this market.  Net Present Value and all that.  I am liking B shares lately.  I always explain totally and let the client pick.
Jan 2, 2008 8:38 pm

If you were to read a prospectus, you would see that B-shares are far more expensive for holding periods longer than about 6 years for most funds.  If you hit breakpoints that time frame is even shorter.

Jan 2, 2008 8:45 pm

http://apps.finra.org/InvestorInformation/EA/1/mfetf.aspx


 
bookmark this to your favorites.
 
Show the analysis to your clients and if the choose the non-A share option, have them initial it.  I would show it as of the year the A-share becomes less expensive than the B or C-share options.
Jan 2, 2008 9:16 pm

VBrainy,

    Let's say you sell some B-shares of Hartford Capital Appreciation, then Saul retires 2 years later....what do you do?  C-shares are a much better option for the client.  Takes 5-12 years for you, as the advisor, to make up the difference commission-wise, but it is better for the client.  Careful though, many C-shares only trail 90 bips, some as low as 65 (Franklin Income).  B-shares have almost no place in today's investment environment, except possibly with an elderly client without much money that is earmarking the money to his/her kids (no CDSC liquidation on death)
Jan 3, 2008 12:18 pm

Iceco1d, I agree with most of your post--except many people forget that even though the 12b-1 fee on most C shares = 1%, it would have been .25% on a A share, therefore the cost of using a C share is .75 basis points unless in the RIA is using ETF's or No-Loads. 

 
I don't like to do a fee based program for my client's under $100,000--but I will use C shares under that amount and I can still select the best of different fund families to set up good portfolio of C shares.  Plus they only pay .75 more in 12b-1 fees instead of a 1% RIA fee.
Jan 3, 2008 7:09 pm

There is a subtle but critical difference between C shares and an RIA charging a 1% fee.  Yes, you may earn 1% in both cases (leaving aside the issue of what your 'payout' is with a C share), but there is a huge regulatory difference.

C shares you get paid a commission trail for the transaction.  RIA you are paid for your advice. 

Sounds like splitting hairs, but it's enough to result in two complete different regulatory bodies (FINRA vs. SEC), and two different standards (suitability vs. fiduciary).  You gloss over this distinction at your own peril.

Jan 4, 2008 9:41 am

I agree with you, I don't disagree Morphius!  I think my post was misleading!

Jan 11, 2008 9:28 am

Anybody at Jones know at what level FSD's start sending FSPends on C shares?  I've never had a problem under 100K, but I've never tried anything over that amount.  Just curious. 

Jan 11, 2008 3:46 pm

Been in business 10 years and have never sold a B share.  Tried once, client was 103 years old, had more money than he'd ever need, and wanted to avoid the A share front end charge but also decrease the annual expenses in case he did live 7-10 more years.  All money was going to grandkids (no CDSC on death) and Jones denied the trade(s), which were total >$100,000.

Jan 11, 2008 3:48 pm

And before anyone jumps on me, the B share commission was explained to the client, they didn't care.  They knew the B vs. C commission comparison.