The shares, often seen as good investments for small investors who plan to keep their money locked up for several years because of a lack of upfront sales commissions and tapered withdrawal commissions, have come under scrutiny from regulators as of late. Regulators say that some brokers sold clients B shares when it would have been more appropriate to sell them A shares, which offer discounts on upfront commissions for larger investments, according to the Wall Street Journal. Although they say most were sold out of ignorance, some brokers are being investigated for pushing B shares to pocket larger sales commissions.
In response to the inquiries by the National Association of Securities Dealers and the Securities and Exchange Commissions, B shares sales have dropped heavily, and some fund companies have already dropped B share offerings. Franklin began creating a plan to discontinue the selling of B shares earlier in the year, and on Wednesday the board approved the move, the WSJ reports. Outstanding shares will remain in existence, but new shares will not be issued.
The move by Franklin Templeton may be a sign of things to come. Smaller funds have discontinued their use, but Franklin, the nation’s fourth-largest fund company, is the first major firm to stop selling B shares, according to the WSJ. Brokers, not surprisingly, loved the shares because of the potentially large payout.