Traditional A shares purchased through a broker include an immediate fee called a front-end load
(expressed as a percentage of the purchase) as well as management fees and ongoing fees for distribution expenses, called 12b-1 fees, Morningstar explained in its research.
Summary statistics for front-end loads
appear in Panel B of Table 2.
One class might, for instance, involve a front-end load
but no 12b-1 fee.
Also note that, when compared to these alternatives, the option that combines a lower front-end load
and a moderate 12b-1 fee is not a suitable option over any of the investment horizons.
This premium, or "front-end load
," covers, where applicable, the underwriter's cost, the broker's commission, and other sales and promotional expenses incurred by the fund.(5)
Adopting the "T" share class would, he said, "cause some negative revenue impact to [brokerage firms] and to advisors, though the figure is less than what the headline differences in front-end loads
* use of back-end loads (surrender charges) that phase out over time rather than the front-end loads
typical of other types of policies;
In the United Kingdom, where corporate and non-corporate mutual funds exist side-by-side, mutual funds organized as corporations charge significantly lower front-end loads
and annual management fees than mutual funds not organized as corporations, after controlling for other factors.
Schott Stevens also stated that investors' actual experience with broker-sold funds "contradicts" DOL's claims.Publicly available data demonstrate that, contrary to DOL's claims, "investors who own funds that are sold with front-end loads
during the years 2007 to 2013 actually have concentrated their assets in funds that outperform -- not underperform -- other comparable funds," according to Schott Stevens.
The vast majority of Wharton MBA students were unfamiliar with concepts such as expense ratios and front-end loads
, and even when provided with fact sheets about such fees, only 6% of the students chose to invest in minimum-fee index funds.
The ICI claimed that "[t]he substitution of 12b-1 fees for front-end loads
contributed significantly to the substantial reduction over the past two decades in the cost of purchasing bond and equity funds." (224) Like virtually all of Rule 12b-1's folklore, however, on close inspection this contention fails.
You go from A-shares in a mutual fund with front-end loads
and expense ratios and put it in an ETF pipe instead, which results in substantial cost savings for the end investor."