AN ERA ENDS: AMERICAN CAVING ON B SHARE SALE: LAST OF MOHICANS FOUGHT BACK-END LOADS FOR DECADE

American Funds, which became the country’s third-largest mutual fund group by courting stockbrokers, is preparing for a day it swore would never come.

Later this month, shareholders of the funds, owned by Capital Research and Management, are expected to change the bylaws of seven portfolios — including the $52.1 billion-asset Investment Company of America and the $20.7 billion-asset Growth Fund of America — to allow B shares, those with back-end sales charges. For more than a decade the company has resisted issuing any shares carrying charges that weren’t collected up front, so-called A shares. If the vote passes, all American funds could now issue B shares.

This is like Dylan going electric.

“They have been the last lonely voice in the wilderness saying we don’t create B shares,” says Burton Greenwald, a Philadelphia mutual fund consultant. “I’m surprised it took them this long to realize they had to be fully competitive in pricing.”

A spokesman for the company, which manages $294 billion, emphasizes that just because the company is making itself capable of offering B shares doesn’t mean that it actually will. Of its 29 portfolios, 22 already allow B shares, but none offer them. “I would not take (this) as a decision because no decision has been made,” he says.

American has earned distinction as the only mutual fund group that specializes in selling through brokers to resist participating in the alphabet soup of share prices.

For years it supported the common belief among brokers that A shares are the best deal because they don’t carry hidden charges. Rather than charging, say, 4% or 5% of assets up front as is the case with A shares, funds with B shares often take 1% off the top each year in the form of 12b-1 fees. They also might charge the same 4% or 5% for selling out of the fund prematurely.

With B shares, American Funds would likely jump-start sales through its already enviable network of banks and brokers, because investors are loath to pay hefty upfront fees.

B shares can be more expensive for the fund company, because it pays the broker upfront with its own money instead of the investors’.

“We’d love it,” says Mark Hofstetter, a broker in the Chicago office of St. Louis-based A.G. Edwards Inc. A shares “are a tough sale because everyone’s conditioned not to pay a load.”

Kevin Cox, a broker for Edward Jones who works in Chicago and sells American Funds almost exclusively, takes a different view.

“I think it’s a mistake if they do,” he says. B shares are “a gimmick. It’s easier to sell a B share than an A share but it doesn’t serve the client.”

Mr. Cox prefers A shares to B shares because customers know up front what they are paying.

With the booming stock market, consumers don’t notice getting nickeled and dimed by fees, Mr. Cox says. If a long-awaited correction occurs, investors may not like paying 1% of their assets when their fund’s value shrinks by half.

Edward Jones gives a higher payout for A shares than B shares, 40% vs. 35%, Mr. Cox acknowledges.

American Funds may be feeling pressed to make its funds more appealing because some haven’t been performing as well as in the past, according to Morningstar Inc. of Chicago.

For instance, Income Fund of America falls in the 74th percentile for its peer group year-to-date, 73rd for one-year performance and in the 45th percentile over three years.

Investment Company of America places in the 15th percentile for year-to-date performance and in the 18th for one-year; impressive, but its three-year performance is in the fifth percentile and its five-year in the 12th, according to Morningstar.

The $56 billion Washington Mutual Investors fund (which is already permitted to issue B shares) is in the 54th percentile for performance year-to-date and 60th for one-year; it ranks in the 11th percentile over three years and the eighth over five.

“They’re finding it much more competitive out there,” says Mr. Greenwald, the industry consultant. “Their performance has faltered.”