Mutual Fund B Shares Face Extinction

The demonization of “B Shares” continues as even more mutual fund families drop this share class from the roster.

From the Wall Street Journal:

Lately, Goldman Sachs Group Inc., Allianz SE’s Pacific Investment Management Co. and American Century announced they would exit B shares. This accelerates a trend that has been gathering force since mid-decade. The fund industry says B shares are shrinking due to lower customer demand. In fact, the number of B shares offered and the class’s sales volume have gone down because the fund companies and brokers no longer want to peddle the Bs.

Over the years, fund houses ranging from Dreyfus to Franklin Templeton have dumped these back-end load funds. The number of B shares offered peaked in 2002 and has slid 20% to 2,283 as of October, says Morningstar. B shares’ assets were 7% of the fund industry’s total in 2000, 4.9% in 2002 and just 1% this year, according to figures from Morningstar and the Investment Company Institute.

The article argues that B shares are declining in popularity for regulatory reasons, but I think the ETF factor, which is not really mentioned, has every bit as much to do with it.  I believe the B share class will cease to exist within the next 3 to 5 years, especially if the new Investor Protection Act extends the Fiduciary Standard to broker/dealers as well as investment advisors.

Sources:

“B” Shares Shunned (WSJ)

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