Clean shares that were devised to comply with the Labor Department’s fiduciary rule will live on despite the rule’s demise, Boston-based Cerulli Associates opines.
While clean shares have existed for some time, Labor’s fiduciary rule ushered in the advent of T shares (or “transactional” shares) and then share class Z, or “clean” shares — which were developed to allow level commissions that the broker could charge directly to the customer.
Cerulli notes in its report released Tuesday that these new share classes “were defined as a triple-zero or double-zero share class that would be designed specifically for the intermediary channel to address concerns over conflicts of interest.”
Now that Labor’s rule has been repealed, will the share class type “stick” within the intermediary channel? “There are reasons why it will,” the firm states.
Despite the death of Labor’s rule “and lack of clarity around the inclusion of sub-transfer agent (sub-TA) fees, clean-share mutual funds will likely have a place in the intermediary market due to greater fee transparency and lower cost,” Cerulli states.
Asset managers “will need to work hand-in-hand with their distribution partners to rework the payment flow of certain asset-based fees (e.g., 12b-1 fees, sub-TA fees) that will no longer be included in clean shares.”
What is a clean share? Cerulli explains that the share class falls into one of two broad classifications, commonly referred to as “double zero” or “triple zero.”
Double-zero share classes refer to those that do not contain a sales load, have stripped out distribution fees (e.g., 12b-1 fees), but do contain some kind of service fee or sub-transfer agent (sub-TA) fee.
Triple-zero shares also do not contain a sales load, have no embedded distribution fees, and carry no service or sub-TA fees.