DEFINITION of 'Clean Shares'

Clean shares are a relatively new class of mutual fund shares. The mutual fund industry introduced clean shares, along with T shares, in response to the Department of Labor’s fiduciary rule. This conflict of interest rule was designed to put an end to unscrupulous behavior among brokers and financial advisors, such as recommending more expensive fund options to clients so that they could collect a higher commission. Because clean shares provide a single uniform price across the board, advisors are not tempted to push an expensive fund over a more affordable one.

Clean shares thus serve to provide investors access to the exact same fund management as other retail mutual fund share classes, but typically with lower and more transparent costs.

BREAKING DOWN 'Clean Shares'

Clean shares were launched in 2017 as a way to improve transparency in mutual fund fees and commissions borne by investors, and to comply with new regulations spelled out by the Fiduciary Rule.

According to a Morningstar report, clean shares are the best way to enhance transparency for mutual fund investors. Unlike T shares, clean shares do not have front-end sales loads or annual 12b-1 fees for fund services. Although clean shares may carry fees for investment management and administrative costs, these shares do not include distribution fees or commissions. However, advisory firms can still layer on their own additional fees for their services rendered. Brokers often set their own commissions for selling clean shares which can be based on a fixed rate or a percentage, which adds some transparency for investors.

Not only do clean shares lead to higher transparency and fewer conflicts of interest, but this share class could also offer investors big savings. According to the Morningstar analysis, clean shares and other new share classes designed in the wake of the fiduciary rule could save investors at least 0.50% in returns, compared to current offerings. To top it off, investors could receive an extra 0.20% in savings because their advisors will have the incentive to recommend the fund that’s in the consumer's best interest.

Example of Clean Shares

As an example, we can compare the costs associated with two different share classes for the same underlying mutual fund. Take the popular The American Funds Washington Mutual Investors Fund (AWSHX).

The class A fund shares charge a maximum load of 5.75% and charges a net expense ratio of 0.57% per year. With a T share class of the same fund,  an investor would still pay the 0.57% annually, but their broker would only be able to charge a maximum 2.5% sales load. With a clean share class of AWSHX, there would be zero sales load attached to the transaction. Instead, brokers would be able to charge a separate fee for their advice or ongoing service. Even if their fee is identical across all funds, the investor can be assured that their advisor isn't pushing this particular fund because of its incentive structure.




  1. C-Share

    C-shares are classes of mutual fund shares that are charged a ...
  2. Class B Shares

    Class B Shares are a classification of common stock that may ...
  3. Load

    A load is a sales charge commission charged to an investor when ...
  4. Service Shares

    Service shares are shares of a mutual fund that charge an extra ...
  5. No Transaction Fee Mutual Fund

    A no transaction fee mutual fund is a mutual fund with no associated ...
  6. B-Share

    A B-share is a class of shares offered in an open-end mutual ...
Related Articles
  1. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  2. Investing

    Consider These Fees When Evaluating Mutual Funds

    The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged.
  3. Financial Advisor

    AWSHX: American Funds Washington Mutual Investors

    Learn about American Funds Washington Mutual Investors Fund, a highly rated growth and income fund from Capital Group, and a valuable asset manager.
  4. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
  5. Investing

    A Guide For Picking Long Term Mutual Funds

    Learn about considerations for investors when buying shares in a mutual fund for a long-term investment, including fees, type of management and portfolio goals.
  6. Investing

    A Guide to Mutual Funds Trading Rules

    Make sure to review this guide on the dos and don'ts of mutual fund trading before you invest, including how trades are executed and which fees to look out for.
  7. Investing

    Investors: Your Fees Are Probably Too High

    The lower your fees, the higher your returns. Here's how to find out if you're paying too much for your investments.
  8. Financial Advisor

    How the Fiduciary Rule Will Impact 401(k) Advisors

    Here's the impact that the new fiduciary rules will have on financial advisors serving as advisors to 401(k) and other defined contribution plans.
  9. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
Trading Center