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FYI: The introduction of a ‘clean share’ class of mutual fund shares is a product of the fiduciary rule that gives investors a more transparent, easy to understand, low cost means of investing in mutual funds. Used properly, clean shares can improve an investor’s risk-adjusted returns. Regards, Ted http://mutualfunds.com/education/introduction-clean-shares-in-mutual-fund-space/
Some fund houses appear to be launching old funds as "new" funds with what seems to be a "clean share" designation ... but not as another share class associated with previous fund. Examples: Fidelity Contrafund K6 (FLCNX) and Fidelity Low-Priced Stock K6 (FLKSX). Clearly, these are not new funds, but our database (Lipper) show these two funds launched this year. Not sure. Still scratching my head a bit on this and need to look into.
That K6 must mean that these shares are not just clean, but Klean, Klean, Klean, Klean, Klean, Klean. No artificial flavors, colors, GMO, fillers, nitrates, or trans fats. (Fidelity currently lists these shares as not for human consumption, i.e. closed.)
One often has clones for variable annuities, e.g. Fidelity's VIP (Variable Insurance Product) funds. I believe that Fidelity's retail and Advisor funds used to be clones of each other as well.
It will be interesting to see how brokerages handle clean shares. Each brokerage is going to add its own handling/maintenance/service fees on top. Will advisors shop the lowest priced brokerage (perhaps to the detriment of the investor)? A possible conflict of interest?
Will these costs be hidden from the investor (buried in the advisor's wrap fee), or transparent? The cloning of funds may be a first stab at obfuscation. If investors see how much brokerages are charging to buy clean shares, they'll be able to compare with the transaction fees they're getting charged for I shares. They may start insisting on lower transaction fees if the clean shares cost less to buy. (Advisors may complain if the clean share transaction fees are higher.)
Retail investors will be able to compare the ER difference between clean shares and I shares to get a sense of how much the funds are paying the brokerages for shelf space (even TF funds). Will they complain if the ER difference is higher than what the brokerages charge for ongoing servicing of clean shares?
If the clean shares (all in, including brokerage fees) are cheaper overall than buying TF I shares (including higher ER), will there be pressure on the industry to sell clean shares at the retail level?
Here's larger list ... have inquiry into Lipper, which shows them as having separate portfolio id number from the legacy funds of same name:
FAPCX Fidelity International Capital Appreciation K6 FBCGX Fidelity Blue Chip Growth K6 FCLKX Fidelity Large Cap Stock K6 FCMVX Fidelity Mid Cap Value K6 FDVKX Fidelity Value Discovery K6 FKICX Fidelity Small Cap Stock K6 FKIDX Fidelity Diversified International K6 FLCNX Fidelity Contrafund K6 FLKSX Fidelity Low-Priced Stock K6 FOCSX Fidelity Small Cap Growth K6 FSKGX Fidelity Growth Strategies K6 FTKFX Fidelity Total Bond K6
Comments
One often has clones for variable annuities, e.g. Fidelity's VIP (Variable Insurance Product) funds. I believe that Fidelity's retail and Advisor funds used to be clones of each other as well.
It will be interesting to see how brokerages handle clean shares. Each brokerage is going to add its own handling/maintenance/service fees on top. Will advisors shop the lowest priced brokerage (perhaps to the detriment of the investor)? A possible conflict of interest?
Will these costs be hidden from the investor (buried in the advisor's wrap fee), or transparent? The cloning of funds may be a first stab at obfuscation. If investors see how much brokerages are charging to buy clean shares, they'll be able to compare with the transaction fees they're getting charged for I shares. They may start insisting on lower transaction fees if the clean shares cost less to buy. (Advisors may complain if the clean share transaction fees are higher.)
Retail investors will be able to compare the ER difference between clean shares and I shares to get a sense of how much the funds are paying the brokerages for shelf space (even TF funds). Will they complain if the ER difference is higher than what the brokerages charge for ongoing servicing of clean shares?
If the clean shares (all in, including brokerage fees) are cheaper overall than buying TF I shares (including higher ER), will there be pressure on the industry to sell clean shares at the retail level?
FAPCX Fidelity International Capital Appreciation K6
FBCGX Fidelity Blue Chip Growth K6
FCLKX Fidelity Large Cap Stock K6
FCMVX Fidelity Mid Cap Value K6
FDVKX Fidelity Value Discovery K6
FKICX Fidelity Small Cap Stock K6
FKIDX Fidelity Diversified International K6
FLCNX Fidelity Contrafund K6
FLKSX Fidelity Low-Priced Stock K6
FOCSX Fidelity Small Cap Growth K6
FSKGX Fidelity Growth Strategies K6
FTKFX Fidelity Total Bond K6