Which mutual fund share class is best for clients?

The right answer is elusive. It depends on the size of the investment, the holding period and the likely return. And neither performance nor holding period can be predicted with certainty.

"It's hard to generalize because there is no uniform answer," says Russ Kinnel, director of fund analysis for Morningstar Inc. in Chicago.

Some rules of thumb: A shares, with the highest front-end charges but the lowest ongoing costs, are good choices for lengthy time horizons. "Many of our customers will own a mutual fund for 20 years and accumulate a lot of money over time, so for them we prefer A shares," says Tom Miltenberger, an Edward Jones principal in St. Louis who oversees fund sales.

A shares are the obvious choice for anyone able to commit 100,000 dollars or more. "Most of the money that's going into A shares is so big that it's hitting breakpoints," Kinnel says. Many fund companies won't place large purchases in anything but the A class.

B shares help clients avoid a haircut on their initial investment, but impose higher ongoing expenses and a back-end load. This alternative also can make sense during rising stock markets, when investors want to put as much cash to work as possible. "If you're buying in right before a rally, you're probably better off with a deferred sales load,' Kinnel says.

Most fund groups will automatically convert B shares into A shares after five to eight years. So long-term investors who choose B shares aren't penalized since they receive the lower costs associated with A shares at the time of conversion.

C shares could be the best option for a client who may bail out after two or three years. "But they're the most expensive way to own mutual funds over 20 years," Miltenberger warns. And they typically don't allow for conversions into A shares.

You can run your own analysis, but in the end it's often a matter of preference.

"The shares I like the least are the B shares," says Patricia Ternes, a broker at Dain Rauscher in Phoenix. "They're neither fish nor fowl. They're not the best choice for either a long-term hold or a short-term investment."

At Aquila Funds in New York, B shares are accounting for more new sales, says Lacy Herrmann, founder and chairman. "Many brokers don't want to sell A shares because they're getting requests from customers who don't want to pay anything upfront."

One of the biggest problems Kinnel sees is that people don't always grasp how they're paying. "We hear from people who went to a broker saying, 'I didn't pay anything' [for B or C shares]. We say, 'Oh yes, you did.'"

People shop around for cheap stock commissions. They haggle over cars, homes, airline tickets and even electricity prices. It seems just about everything is negotiable these days.

Everything, that is, except mutual fund loads.

The 60-year-old Investment Company Act requires fund shares to be sold only at the price described in the prospectus. Under section 22(d) of the act, sales loads can vary but only if price breaks are uniformly available to all investors. Not exactly textbook capitalism at work.

Opposition to fixed pricing periodically surfaces. In a 1966 report, the SEC said price competition at the retail level was needed to counteract the incentive funds have to raise loads to spur sales. Later, in 1992, the SEC's division of market regulation recommended competition, saying, "Investors are harmed by higher prices than might otherwise be available in a competitive marketplace."

But the mutual fund industry has successfully opposed negotiable loads. "I'd be concerned about increased confusion, and small investors probably would pay more," says Matthew Fink, president of the Investment Company Institute in Washington, D.C.

Meanwhile, multiple share classes have helped ease the controversy by providing more payment options. But whether spread out or paid upfront, investors still can't negotiate a load.