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Thursday, May 25, 2017

A Wirehouse Chooses T Shares

News summary by MFWire's editors

T shares just won a key victory and landed a crucial ally in the battle of new share classes for domination of the new fiduciary era. The victory follows some T shares retreats earlier this year.

David Kowach
Wells Fargo Advisors
president & head
Last Friday Wells Fargo Advisors informed financial advisors via a memo that it's going to restrict retirement account (i.e. IRA) mutual fund sales to T shares alone, Bruce Kelly of InvestmentNews reports. The bank-owned wirehouse is also restricting what kinds of fixed income FAs can use in retirement accounts.

Wells' new retirement account restrictions are scheduled to take effect on June 9, the same day the Department of Labor's controversial fiduciary regulation (also known as the "DoL rule" or the "fiduciary reg") is scheduled to partially start taking effect, though with an increasing number of caveats.

AdvisorHub and Reuters also reported on Wells' move.

The new restrictions at Wells will not affect non-retirement accounts, where advisors will be able to continue selling A shares and C shares.

T shares use a front-end load and a small trail, like A shares, yet the load on T shares is set at 250 basis points and the trail is set at 25 bps across any fund's T shares, while A shares loads can vary from fund to fund. Thus, T shares offer Wells and its advisors a way to earn commissions while keeping those commissions level across different investment options.

That contrasts with another new share class, clean shares, which looks like an institutional share by stripping out the commission and the trail and then allowing platforms to layer on their own commissions.

Wells' move came just three days before the DoL issued new fiduciary reg guidance. That guidance, as MFWire previously reported mentions clean shares five times and even calls the approach an example of "promising responses to the Fiduciary Rule." The guidance also mentions T-shares, once, as a "somewhat similar approach" to clean shares.

Meanwhile, Wells is also blocking its FAs from using a host of less-liquid and/or lower quality fixed income investments inside of retirement accounts. 

Edited by: Neil Anderson, Managing Editor

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