What’s The Matter with U: “U” is absent in the current offering of 375 Mutual Fund Share Class names
Personally, I don’t like going to a restaurant where the menu just goes on and on, making me wonder if they can really prepare all those selections equally well! I also have a problem with mutual fund share classes, on a number of levels. Like certain restaurant menus, they are endless.
I recently looked at a common mutual fund industry database and found over 375 share class names. Back in the old days you had A, B and C shares. Today you’ve got share classes named after every letter in the alphabet, except the letter U. The letter R appears to be very popular, like appetizers; you can have an R, R1, R2, R3, R4, R5 or R6 share class. Looking for a main course? The names include some nice descriptive examples such as Ultra, Select, Retail, Prime, Premier, Direct, Classic, VIP and hundreds more. I am left to ponder, is U like monkey brains: something found in movies, but not on real menus? And why do we need all these names in the first place?
So how did we get from just A, B and C shares to the plethora of fund share classes we now have? Place the blame at the feet of the mutual fund marketing folks. They would create a new share class in order to make a fund more attractive to a certain segment of the market. It could be a class with no load, or a back end load or it could be a different expense structure. Whatever the case, the root cause was to develop a product to suit a certain type of buyer. I have no problem with using various letters or names for the different share classes, but what is needed is some form of universally accepted share class indicator.
Obviously there are not 375 unique share classes, but without a commonly accepted share class indicator, it is hard to tell how many unique share classes there are. I counted 34 different A shares classes, based on some use of a capital letter A in the class name. I think they are all A share classes, but I could be wrong, and therein lies the problem. Call the share class what you want: A, A1, A Shares, Class A , A Class, Admiral, Advantage, whatever, but include a share class indicator that denotes this is an A share. This share class indicator would be a universally agreed upon listing of share class types (here you go ICI) that would define the share class regardless of the name used on the share class.
We already have the equivalent for mutual fund investment classes such as Growth fund, Balanced fund or High Yield Bond fund. There are 33 pre-defined investment classes that are pretty much universally agreed upon. Why can’t we have that for share classes? In Part II of “What’s the matter with U,” I’ll dig into the various issues that all these share classes actually are creating.
L. Burton Keller was a principal founder of the company in 1985 and currently focuses on strategic initiatives for the company. Mr. Keller is a former member of the Bank, Trust and Retirement Advisory Committee of the Investment Company Institute. He has served on numerous committees and task force groups with the ICI over the last 17 years including Co-chair of the Dividend Distribution Task Force.