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Morningstar Predicts Investor Savings, Benefits from T Shares and Clean Shares

A new policy paper from Morningstar explores the potential of new mutual fund share classes formed in response to the DOL’s Fiduciary Rule.  The paper discusses T shares, which are sold on a uniform commission basis and exclude revenue sharing or platform fees,and “clean” shares, which allow firms to shift to a “level fee” model in which advisers’ compensation only comes from a level charge on clients’ assets and not from third-party payments. Some key takeaways from the paper:

  • Morningstar believes that the move to T shares from A shares will reduce conflicts of interest in commission-based sales and estimates potential savings of about 50 basis points for some investors.
  • Morningstar anticipates that firms will create more than 3,500 new T shares in the coming months for advisers to sell to IRA investors, and that T shares may eventually supplant A shares in brokerage accounts.
  • Morningstar believes the uniformity in T shares reduces the risk that advisors will choose funds that might not be in an investor’s best interest.
  • Unlike T shares, clean shares will not have any sales loads or annual 12b-1 fees, leading to greater transparency for investors.
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