For those that have a solid framework of Mutual funds skip down to the section with each Custodian to see Navigation Instructions, But for those that need a quick Refresher start here and work your way down.
Mutual Funds are professionally managed pools of assets with an objective or investment style, and there are different classes that assess fees and expenses in a different way.
A class – charge front end loads, which a portion of your money is deducted from the initial investment outlay. Mutual Fund class A shares have breakpoints, which are thresholds when the initial money invested reaches a certain dollar amount will provide a discount off the front-end load fee. Also, with Class A shares some companies give front end load discounts to investor who express a “letter of Intent”, or intent to invest more over a period of time to put more money in this fund to reach a certain breakpoint. Mutual Fund class A shares are more suitable for investors with a long time horizon.
B Class – These shares a becoming very hard to find, but nevertheless are out there and deserve some clarity. Mutual Fund B class shares don’t have a sales charge when you buy, but have a CDSC (Contingent Deferred Sales Charge also called a Back End Load). This sales charge declines the longer you hold the mutual funds and if held longer than the period expressed in the contract then possibility of converting to lower cost A shares. Finally, Class B shares don’t provide breakpoints, and have a higher expense ratio until they are converted to class A shares
C Class – Typically end up being higher charges over time (not as high as B), and don’t convert to B or A class shares. Mutual Fund C Class shares typically after holding these shares for a year remove the back-end load. This class is more suitable for individuals expecting to redeem shares in the short term. Another thing to note, there are no breakpoints that reduce back end load fees, the most advantageous reason to invest in class C shares are the full dollar amount initially invested will be accumulating interest from day one.
FINRA:
Here is a very helpful tool that can compare and evaluate Mutual Funds hypothetical performance to see an in depth overview of breakpoints and expenses over time.
https://tools.finra.org/fund_analyzer/
Once you click on the link it will take you to a “Fund Analyzer” page with a search bar that you will type in the ticker symbol, and it will load all the way at the bottom. When you type in each ticker symbol the bottom will load with that Mutual Fund and the maximum number you are allowed to compare at once is three. As you scroll down the Summary page to see the hypothetical comparisons, you can start to evaluate the differences through visual graphs and charts. The rows of organized data compare Annual Operating Expenses, Sales Charges (front-end load), CDSC, Account Level Fees, Morning Star Ratings and more.
Schwab:
Under The “Research” tab and under subtab “Mutual Funds” type the mutual fund in question in there or directly under the subtab Mutual fund there is a Compare tool which allows you to see the differences of mutual funds. One other important thing to note is once you type in a prospective mutual fund there will be a banner with sub options under that mutual fund and the one to pay attention to is the “Related Funds” tab as it will show funds that have a similar fund objective while comparing the expense ratios.
Some Schwab Internal Classifications to be Aware of:
F-1 expense ratio is higher,
All R- class mutual funds are for qualified accts (retirements), but capable of purchasing more.
A class are available for custody and transfers in but no new purchases.
All C class mutual funds are for redemption and custody only, no new purchases or subsequent purchases.
*remember that converting to a lower share class only works one way, Schwab will not convert back to higher share classes without individual approval from the fund. (Schwab discourages this as the mutual fund company most likely will disapprove)
TD Ameritrade:
Under the “Research” Tab and select Mutual Funds, a side panel will come up with more options.
TD has a mutual fund comparison tool that allows us to compare funds but no tools that allow us to compare with other share classes of a similar fund family. The Expense ratio is annualized, so we can do a manual calculation of the difference in expense ratios and multiply it by the amount of money in the portfolio to determine an estimate of money spent to have any specific fund (Or use FINRA’s tool https://tools.finra.org/fund_analyzer/).
**Keep in mind TD Ameritrade does not have a “Related Funds” tab like Schwab
Fidelity (IWS):
For Fidelity’s platform they use a Screener tool that allows researchers to find a fund. The Screener tool is located on the left side panel as a microscope icon. Then there is an option for a mutual fund screener tool powered by FACTSET. We can choose multiple filters to chisel away at our objective to finally reach a masterpiece that is suitable and offers lower expenses than an otherwise similar fund. The Expense ratio is annualized, so we can do a manual calculation of the difference in expense ratios and multiply it by the amount of money in the portfolio to determine an estimate of money spent. When you click on the Mutual Fund ticker, performance data will show the funds objective, strategy and risks.
Pershing:
On Pershing, under “Market & Research” choose the “Mutual Fund Center” then “Compare Funds.” Here you can place various mutual fund symbols that you would like to compare. This tool is similar to the TD Ameritrade platform since they both have the side by side comparisons with the fund details and performance. Like TD Ameritrade the expense ratio is annualized and can be subtracted from fund in comparison and multiplied by the principal invested to see the difference in expenses per year.
The Bottom Line, when deciding which Mutual Fund share class to invest in, you must always read the prospectus and be cognizant of your client’s investment horizon, the amount you are initially investing, and the likelihood of you unintentionally withdrawing funds. Furthermore, consider the investment objectives, expenses, 12B-1 charges, and risk to determine if this is the right fund for you or your clients.
Resources:
https://www.investopedia.com/articles/mutualfund/05/shareclass.asp
https://wealthcentral.advisorchannel.com
https://si2.schwabinstitutional.com
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