What are Class B Shares?
6/12/2008 10:00:00 PM In recent years the NASD has fined and sanctioned a considerable number of brokerage firms for improperly recommending the purchase of Class B shares of mutual funds. The NASD has also disciplined and suspended many individual brokers and advisors for the same reason. This article will explore the reasons for these actions and provide a basic understanding of B shares and alternative classes. Frequently, as will be shown, Class A shares of mutual funds are more cost effective than Class B shares. This is especially the case when the amount of the customer’s investment is in the millions. Brokers often fail to inform the investor on issues pertaining to breakpoint, expense ratio, commissions, and the contingent deferred sales charge. NASD Rule 2310 requires that a registered representative, when recommending investments, determine that such investments are suitable based on the customer’s financial profile and investment objectives. Erdos v. SEC, 742 F.2d 507, 508
Class B shares are a classification of stock that provide a different amount of voting privileges than provided by Class A shares issued by the same company. Shares of this type may also carry higher annual expenses for a specified period of time than other classified stocks, although they rarely are structured with a front-end load like Class A classified stock. While circumstances vary, Class B shares are often structured and governed by provisions within the bylaws of the issuing corporation. It is not unusual for a corporation to issue more than one class of stock. In the case of Class B shares, many companies that utilized the ESOP, or Employee Stock Ownership Plan during the 1980’s and early 1990’s, would choose to issue Class B shares. The shares were issued to employees of the company, and often served as a substitute for a more traditional retirement plan. One key area where Class B shares differ from other classifications of shares is with voting rights. Often, shares of stoc
