In response to regulators’ efforts regarding mutual fund share class practices and in anticipation of the SEC’s Regulation Best Interest going into effect, several large broker/dealers, including Merrill Lynch and Morgan Stanley, updated their C-share conversion policies by shortening the length of time C-share mutual funds could be held by investors prior to being automatically converted to A-shares. Merrill Lynch cut its allowable holding period from 10 years to 5 years, effective June 30, 2020, and Morgan Stanley shortened its holding period from 10 years to 6 years in 2019.

Asset managers have historically automated the conversion of C-shares to A-shares after funds have been held for 7 to 10 years, depending on the firm. But on the heels of changes made by broker/dealers, many of the largest fund companies updated their own policies in 2020 to 8 years. FUSE has been tracking these policy changes, and the following summarizes the most notable changes. We expect to see this trend continue through 2021.