Doug asked:

What are the differences in costs between A, B and C shares of a mutual fund?

Gary Reamey answered:

In the US "a" share funds have a maximum 5% initial commission and a annual expense fee. "B" shares have a zero initial commission, typically a 7 year holding period and a higher annual expense fee than "a" shares. "C" shares have no initial commission, one year or less holding period and a higher annual expense fee than "a" shares.

Our feeling is that our customer at Edward Jones, the serious long term investor, is better off buying "a" share funds, paying the one time commission and getting the lower annual expense fee. Our average client holds a mutual fund 18 years. It makes good economic sense for them to hold the A shares.

In Canada because "a" share front load commissions are fully negotiable, there really isn't the equivalent of the US "c" share.

Also, most fund groups in Canada charge the same annual expenses for their "a" or "b" shares. ie; xyz fund company Canadian growth fund A and B shares have the same annual expense charge.

The savings the fund company has on the A shares vs B shares, because they don't have to fund the salespersons commission on A shares, like they do on B shares, they pay out in the form of a higher trailing commission to the salesperson on the A shares.

There are some fund groups in Canada that have an A share structure more like US A shares where the annual expenses are 1/2% to 3/4% lower than B shares. Hartford Canada Funds and some Trimark Funds are two names that come to mind.

If you can get a 1/2% to 3/4% better return, because of lower expenses, from buying an A share fund versus a B share fund, of the same fund family, that can make a significant difference in your total return over time. In fact, for our customers, it makes buying A shares, a better long term investment.

About the author

Gary Reamey is Principal of Edward Jones Canada. Serving over 5 million investors from over 7,000 single-broker offices in the U.S., Canada and the U.K., Edward Jones has more branches than any North American financial services firm. Gary joined Edward Jones in 1977, and in 1994 he spearheaded the firm's expansion into Canada. Gary is the senior principal responsible for Edward Jones Canadian operations and head of international expansion. He is a past governor of the Toronto Stock Exchange and past chairman of the Retail Sales Committee for the Investment Dealers Association.

 
Click here to go back to Ask-an-Expert index page.