Clean Shares: A Fiduciary-Friendly Solution for Asset Managers

Clean Shares: A Fiduciary-Friendly Solution for Asset Managers

Do asset managers—big, boutique and growing—need yet another new share class? The answer is yes if you want to be fiduciary-friendly.

The long-delayed implementation of some of the DOL’s new fiduciary rules finally went into effect on June 9. While there is a possibility that some of the provisions will be modified in the coming months, it’s a safe bet that the overall guiding principle—that all advisors must act in their clients’ best interests and with undivided loyalties when offering advice on retirement-related investments—will remain intact.

Since investment advisers are fiduciaries by definition, the main impact of these regulations will be felt in wirehouses and independent broker/dealers. Brokers who are compensated through sales loads and 12b-1 fees from advisor-class mutual funds will be hard-pressed to prove that recommending these shares doesn’t violate their federally mandated obligation to act in their retirement clients’ best interests.

“Clean Shares” to the Rescue

For brokers who aren’t ready to move to the fee-based investment advisory model, selling share classes that don’t offer a way to earn commissions removes any “compensation incentive” to serve retirement clients.

That’s why forward-thinking asset management companies like American Funds, Janus Capital and MFS are responding to this challenge by creating “fiduciary-friendly” share classes known as clean shares. American’s clean shares will be called F3 shares. Janus will call theirs Z shares.

Reduced Costs, Greater Transparency

Unlike other share classes sold through broker/dealers, clean shares don’t charge sales loads, 12b-1 fees, transfer agency fees or other investor expenses that generate commissions for brokers and other intermediaries. Brokers instead can charge commissions or service fees for buying and selling shares. Since these costs are clearly stated on investors’ account statements, clean shares will give investors a far more transparent view of their actual investment expenses.

“There has been a tremendous proliferation of share classes in the past 15 years, and clean shares could end up simplifying the process,” said Amy Doberman, a partner at WilmerHale, in an article on InvestmentNews.

Related: How to Be a Thought Leader in the Digital Era

Jumping on the Clean Shares Bandwagon

If your firm is trying to gain traction for its funds among retirement advisors, clean shares may offer an inroad to compete more effectively against firms that are slow to respond to the realities of the post-DOL regulatory environment.  

Selecting Your Firm’s “Clean” Candidates

Since creating any new share class requires a great deal of time and effort, start with a focused selection of well-regarded, top-performing actively managed funds in mainstream asset classes traditionally used in institutional retirement plans and IRAs.

For example, MFS targets its R6 clean share class at defined contribution plan sponsors and advisors,

“Class R6 shares offer plan advisors and plan sponsors greater flexibility when constructing defined contribution plans and investment menu options for participants,” said Ryan Mullen, senior managing director for Defined Contribution and RIA sales at MFS, in a company statement.  

For advisors targeting the DC market, offer clean shares in the categories these plans typically offer: large cap, mid cap and small cap core, growth and value; balanced funds; investment-grade bond funds; developed international equity funds and target date funds.

For advisors aiming to win more rollover business, offer lower-risk equity funds and fixed income funds of varying maturities to help them create bond laddering strategies for retirees.

Accentuate “Fiduciary Fundamentals”

In addition to strong returns, these funds should also have strong “fiduciary fundamentals” such as reasonable expense ratios, solid risk-adjusted performance and favorable peer group rankings.

Since your clean-share funds will be competing with those of other fund companies, you may need to revise your fund marketing materials and pitch books to hlghlight these “fiduciary friendly” characteristics.

Because anything you can do to help brokers transition into this post-DOL fiduciary environment can give you a competitive edge in their home offices.

Dan Sondhelm
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Dan Sondhelm is the CEO of Sondhelm Partners, a firm designed to help financial clients attract investors, strengthen distribution and build brands. Dan was nominated by ... Click for full bio

NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work

NBA Player Carl Landry Demonstrates the Value of Persistence in Life and Work

Written by: Jon Sabes

When you meet Carl Landry, stand-out college basketball player and nine-year NBA player, you imagine that becoming a professional basketball star was a straight forward run for the 6-foot-nine-inch power forward. 

However, when you go deeper into Carl’s background, becoming a NBA professional was less than certain and little came easily to the 33-year-old from Milwaukee:

  • He was cut from his high school team as a freshman and averaged less than ten points a game when he did play as a senior.
  • He started his college career not at Purdue, but a junior college where it was not clear he would play.
  • When he finally got to Purdue, he tore his ACL in his knee his first year and reinjured it the next year.
  • While his family held a party for him the night of the NBA draft, he slept in the Philadelphia airport after missing a flight following a workout for the 76ers.
  • In the NBA playoffs, Carl had a tooth knocked out, but came back in the same game to make a game-winning blocked shot as the Rockets beat the Utah Jazz 94-92.

Landry, who I interviewed on my podcast, Innovating Life with Jon Sabes (, is a remarkable example of the value of “persistence.” In a time where technology creates the image that anything is possible at the touch of a button, persistence is an under-appreciated trait. When I spoke with Carl, I clearly saw someone for whom success has only come through a force of will that made him a NBA player, but it also made him a better player every year he played. That’s the kind of personality that has produced greatness in business as well as sports.

Carl was, in fact, drafted that night he spent in the airport. The Seattle Supersonics chose him as the 31st overall pick and then traded him to the Houston Rockets where he rode the bench for much of the first half of the season. When All-Star teammate Yao Ming was injured, he stepped in and played a key role in the Rockets astonishing 22-game winning streak (the third longest streak in NBA history). And, that season, after sitting on the bench for 33 of the first 36 games, he was named to the All-Rookie second team.

Carl was the first in his family to go to college. “I told myself that this was my ticket out, so I did everything I possibly could to be the best person in school and also on the court,” he said.

His family life in Milwaukee showed him what he didn’t want to do. “Just being honest with you, seeing some my cousins, peers, they went to work for jobs paying six, seven dollars an hour or they didn’t go to work at all and then living off welfare. I didn’t want that.”

When he was first injured, he had to contemplate the end of a career before it even got started. “When you have an ACL tear, it’s over…no more basketball,” he told me. “I said, God, give me health again and I’ll do everything I can to leave it all out on the line and be a successful individual.”

On my podcast, Carl pointed out another interesting lesson he learned in the NBA: Not doing things just to fit in.

“Fitting in was easy,” he said. “Doing everything that everybody else does was easy. If I stood out in some type of way, I’m going to have different results. I’m going to have stand-out results.”

That’s called the “Law of Contrast” and it produces that exact effect of changing the outcomes that everyone else is experiencing.  Carl is smart, he recognized that differences make a difference, and doing whatever it takes is what is required to make real, meaningful differences.

Every off-season for the last 11 years, he has run a camp for kids in Milwaukee where he tells youth his story of hard work and persistence. “I always tell the kids to apply themselves and always be persistent,” he said. “If you dream, apply yourself and be persistent. With hard work, man, the sky’s the limit.”

When Carl says the sky’s the limit he means it.  He is smart to recognize that it’s important to dream big, because if we don’t – we may be selling ourselves short. “You have to dream bigger than your mind could ever imagine,” he said. “I wanted a nice house. I wanted a nice car. I said, and I got all of that. So, what do I do, do I stop now? Maybe I didn’t dream big enough.” That’s a big statement coming from a kid who grew up to be the first in his family to graduate college and go on to be not only a top NBA basketball start, but a good businessman, father and someone who gives back to the community.

I’m convinced that in whatever he takes on as a basketball player or in his post-hoops career, Carl Landry is not going to stop getting better at whatever he does, and in the process of doing so, make the world a better place.

GWG Holdings, Inc.
Investing in Life
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GWG Holdings, Inc. (Nasdaq:GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and i ... Click for full bio