The Share Price segment laments the overabundance of share classes and their various associated fees. I'm going to try approaching this from the other end - what services do you get and how should they be paid for?
There are account servicing costs (statements, tax info, etc.) that are pretty constant per account. Funds can cover these costs by charging everyone the same rate (single share class, large investors subsidize small ones), or by creating a tiered structure (multiple share classes), so that each investor pays a somewhat similar dollar amount for the servicing portion. Phrased that way, cheaper Vanguard Admiral shares, or Selected Funds class D shares don't sound like a bad thing.
Where I think tiered accounts makes little sense is at the institutional level. Why should a
$5M account pay double what a
$200M account pays?
Transactions (buying/selling) have costs. It is cheap but not free to push paper around. Very cheap for funds, less so for brokerages. Thus they skim 40 basis points/year to make it seem you're not paying anything (NTF), or let you pay a la carte (TF). If a fund wants to give you a choice, it uses multiple share classes.
Advice has its costs, too. Pay via a wrap account (typically
1%/year), or at point of sale (front end load), or on the installment plan (skimming a percentage each year), or a la carte (fee only). Regardless, you will pay. Different methods, different share classes.
18 shares classes is absurd, but with choice of service and payments method comes choice of offerings (share classes).
Much of this is done to obfuscate, and that is not a "good thing". Even funds with single share classes may be doing this. Sequoia charges a flat
1% management fee and the management company pays for everything. In reality, you're paying, you just don't know how much (and how much is going to actually manage the fund) because it's all rolled up into a single number. But hey, it looks good, no
12b-
1 fee.
I have the same issue with FPA. Crescent is marketed as a noload fund, but its expenses (for a balanced fund) are out of line with its siblings (formerly loaded funds). You're virtually paying a load or transaction fee or whatever you want to call it, you just don't know it because it's buried.
In contrast, look at a fund like American Century Ultra (TWCUX). As with Sequoia it rolls all the expenses into a single management fee. But it reduces that fee on institutional shares by 20 basis points. That gives you a reasonable idea of how much extra it costs to service retail customers.
Personally, I'm glad I can buy cheaper Admiral shares and pay TFs for cheaper shares that save me money in the long run. The commentary suggested that this was inequitable. I respectfully disagree. I see the issue as clarity not fairness.
