2.14 Mutual Fund Share Classes & Fees
Share classes differ by fee structure rather than portfolio assets. Matching holding horizons and dollar amounts to share classes is a staple SIE test scenario.
Key FINRA Exam Takeaways
- Class A Shares: Front-end sales load; qualify for breakpoints (reduced loads for large purchases) and Letters of Intent (LOI); lowest 12b-1 fees.
- Class B Shares: Contingent Deferred Sales Charge (CDSC / back-end load) that declines to zero over time; higher 12b-1 fees.
- Class C Shares: Level load (annual ~1.00% 12b-1 fee); no front-end load; best for short-term horizons (1-3 yrs).
- 12b-1 Fees: Annual asset-based charges to pay marketing and distribution costs; capped at 0.75% for distribution.
- Breakpoint Sale: Selling just below a breakpoint to earn a higher commission is a severe FINRA violation.
Interactive Knowledge Checkpoint • Section 2.14
Which mutual fund share class is generally MOST suitable for an investor making a large dollar investment with a long-term (10+ year) time horizon?