VOCABULARY: “Clean Shares” in Mutual Funds


WSJ Wealth Adviser Briefing: Clean Shares
By Brian Hershberg
May 30, 2017 5:30 am ET

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With the fiduciary rule set to take effect June 9, WSJ Wealth Adviser’s Daisy Maxey took a look at a new type of mutual-fund share that stands to gain traction.

These “clean shares” charge only the fee to manage and operate a mutual fund, and don’t include payments to distributors, such as the broker-dealers and retirement-plan platforms that sell the funds. Stripped from clean shares are fees to compensate brokers for providing advice and 12b-1 fees, which pay for marketing, printing and prospectuses and other shareholder services.

As it is today, investors who buy class A shares of a mutual fund through a broker, for example, typically pay a sales charge that may range from 2.25% to 5.75%, according to Morningstar Inc. It’s easy for investors to overlook that payment to the broker because it’s bundled in with cost of the fund’s management, and the fund company passes it onto the distributor.

With clean shares, investors will likely pay 60% to 70% less to buy a fund, says Paul Ellenbogen, head of global regulatory solutions at Morningstar. If they want a broker’s advice, however, they would have to pay for that separately

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Seems like a great idea.

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