T Shares

So, what exactly is a T Share?

“T” shares are a newer form of hybrid share class that fund companies designed for short-term investors. The “T” in the “T” share stands for “tax,” due to what has been referred to as a perceived tax advantage. (Globe Advisor)

About 3,800 mutual fund share classes are about to emerge into the market.  Experts anticipate that each mutual fund that now has an A share will soon have a companion T share. Note that Fidelity and Janus currently sell shares that are labeled as T shares. They are different than this new breed, and will be renamed.

Some brokers who are strictly transactional based may use this as a selling tool and brag that cheaper is better. Right? Not necessarily.  The argument could be made that the T-share will cost less than the institutional class share over 5 years, meaning that transaction-based advice is more cost-effective than fee advice.  That, of course, assumes the other costs within the fund are identical.  It also ignores the fact that people who work in the true fiduciary realm do not limit their advice to investing in mutual funds but rather evaluate a clients’ financial situation holistically.  It’s simply what we do in the fee-only fiduciary world.

It’s also important to note that some individuals in the industry will talk about a “2.5% upfront (declining for larger purchases) and an ongoing 0.25% 12b-1 fee” – The problem here is that we have seen clients come to us indicating that their previous advisor did not utilize the discounts available by using the same fund family.  This declining fee sounds great on paper but the question is whether a broker will utilize it as a selling point as a less expensive alternative.

T shares that are held for four years will cost the investor 3.5 percentage points of sales charges: the upfront 2.5 points, plus another point for the four years’ worth of 12b-1 expenses. The same fund held for the same time period in an institutional share class, through a financial advisor levying a 1% asset-based charge, would generate 4 percentage points in advisory fees.

We’re concerned and wonder how often investments at brokerage firms are purchased and then not touched for four to five years.  We speculate that very few fall into this category.

“Some of them (referring to the brokers) would prefer a higher amount. There is nothing to prevent them from doing that–as long as every fund in their platform has the same fee or structure, so as to avoid the possible conflict” – If there is nothing preventing them from raising the fee structure some believe that they will in fact be raising it.   The Department of Labor (DOL) ruling will have its impact on the brokerage community and the T shares discussion will certainly be added to it.

As always, we welcome your questions regarding T shares along with all other investment inquiries.



Budget the Nest. Julie D. Andrews  http://budgeting.thenest.com/t-shares-mutual-funds-28181.html



Globe Advisor. T shares

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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