There could be a lot of share class changes afoot next year, with a marked shift away from revenue-sharing classes.
Overall, according to the August 2015 issue of The Cerulli Edge, nearly 60% of the 50 largest asset managers will make changes to share class offerings heading into 2016. Among this group, a quarter (24%) plan to add share classes, “primarily cited as R6 or some zero revenue share class,” and a similar number say they will move away from share classes that generate revenue through commissions or sales fees.
R6-share class funds now hold 37.2% of total retirement share class assets, about twice what they represented in 2011.
In 2014 most newly introduced share classes were institutional (470) and retirement (379) class, although A-shares and C-shares also experienced triple-digit share class introductions, according to the report.
Cerulli sees this movement to R6 shares, as well as the growth of other institutional options that separate revenue-sharing costs from the actual fees, as part of an overall refining of fund company options — one that the report says will leave four options for investors:
- an institutional share class;
- a share class for retail investors (typically 40 basis points);
- a “classic” 25 basis point 12b-1-share class; and
- a “bare-bones” retirement share class.
“Originally, the industry expected to see an increase in the use of collective trusts for defined contribution (DC) plans in light of the intense scrutiny around plan costs, but mutual fund providers responded by creating either a zero-revenue-sharing share class, or a share class with embedded sub-TA fees and zero 12b-1 fees,” Cerulli explains, going on to note that, “Given the Department of Labor’s focus on fee disclosure and transparency, the use of revenue sharing is generally on the decline.”
