A prolonged bear market is resulting in the loss of millions of dollars in fees each year to mutual fund companies. Fund firms have a particular problem recouping the commissions fronted to brokers who sell funds with back-end loads. In response, some fund companies are changing the formula for calculating the contingent deferred sales charge (CDSC) paid by investors who redeem Class B shares within five years of their purchase. And tracking multiple CDSC calculations within the same fund share class is a new challenge for recordkeepers.
Multiple share classes gained favor in the late 1990s because they allowed a variety of pricing schedules within a single fund to satisfy the needs of different types of investors and channels of distribution. Typically, Class A shares carry a front-end sales charge, or load, while Class B shares skip the upfront sales charge but carry an annual 12b-1 fee to cover sales and marketing expenses. A back-end load, known as a contingent deferred sales charge, is imposed if Class B shares are sold before a set number of years.