The new fiduciary rules that have been handed down by the Department of Labor have had a major impact on the mutual fund industry, as advisors who work with retirement plans and accounts will now be required to choose funds that may pay them less and charge lower fees to the client. American Funds has therefore filed with the SEC to create a new share class that does not pay a commission to the broker and also does not have any 12b-1 fees or sub-transfer fees that are typically paid to the broker platform. A subsidiary of Capital Group, American Funds is a Los Angeles-based asset manager with over $1.3 trillion in assets under management (AUM) and more than 30 traditional mutual funds. Capital Group is one of country’s largest asset management firms.

The elimination of these fees will reduce the overall expenses of the fund by about 37 basis points. The only fees that these funds will charge will be asset management fees. Matt O'Connor, the head of distribution at American Funds, told InvestmentNews that “the why behind this share class is a drive toward a higher level of transparency and simplicity. We're now adding another step. It aids the ability of investors and advisors to compare investment offerings across all structures, and we think the world will end up going here. This doesn't mean that all of a sudden there will be a significant decline in what's charged to the investor, but it at least gives the investor full visibility of what they're paying, and market forces will take it from there. It will be up to platforms to assess whether that makes sense for their system. Firms have different models, and people pay for advice in different ways.”

This move marks the initiation of the third commission-free class of shares that is offered by the fund. The F1 share class eliminated the commission, while the F2 class eliminated the 12b-1 fee but retained the sub-transfer fee. These share classes all fit in well with the new fiduciary rule, and advisors who previously eschewed American Funds because of the fees that they charged may now find this share class to be appealing. (For related reading, see: The DoL Fiduciary Rule and Its Impact on Mutual Funds.)

 

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