It’s reasonable to assume that all shareholders of mutual funds and owners of company stock are treated similarly. After all, that’s basically the definition of “shareholder”. But recent developments in mutual funds and publicly-owned companies have highlighted significant differences among shareholders.

Mutual funds have long created multiple “share classes” of the same fund. Investors in all the classes participate in the same portfolio and so have the same risk and potential for return. Each class, which is usually either a distinguishing word or letter at the end of the fund name, has a different fee structure to accommodate different methods of sales and distribution or different types of investors. It’s really the same as any other product (let’s use Cheerios as an example) – the price of Cheerios at the corner convenience store is much higher for an equivalent amount than at Costco because the packaging and distribution costs for the convenience store are greater. The Cheerios themselves are exactly the same. And there can be a lot of share classes; the American Funds, a large and well-respected fund group, offers 18 share classes for most of its funds for access through brokers, annuities, 401k plans or directly.

Share classes present a number of problems for the average investor. First, investors can be sold share classes that are not in their best interests but which provide greater compensation to the salesperson. Second, it can be quite difficult to determine the specific costs associated with a share class. Fund literature includes data on multiple share classes, so it is hard to decipher, and the exact class is sometimes dropped off brokerage statements because it makes the fund name too long. Most damaging is the impact of higher expenses on performance compared to less expensive options in the same market area and the investor may never realize they have essentially forfeited those returns.

There is a delay in implementing parts of the Department of Labor’s rules that all investment advisors must act as fiduciaries when selling or recommending investments for all retirement accounts, including IRA’s. Being a fiduciary means that the advisor must act in the best interests of the client and the advisor cannot offer an investment that pays the advisor more than comparable investments. Ironically, this has added to the proliferation of share classes, with two new approaches.

Rather than avoid sales charges, companies concluded that they could satisfy the fiduciary requirement as long as the funds they choose all had the same fees. So mutual fund companies created “T shares” which have a 2.5% upfront sales charge and an ongoing 0.25% sales fee. Rather than eliminate the conflict of getting paid from an investment, T shares standardize the conflict.

The other approach taken by mutual fund companies is to strip out all sales and distribution expenses through low-cost “clean shares”. Clean shares include expenses for only investment management and administration and are lower cost than any other share classes of the same fund. Clean shares allow advisors to charge a management fee, typically a percentage of the account value, independent of the investment chosen. And without distribution fees from the fund company, brokerage firms may apply a transaction fee for clean shares that is not applied to other share classes.

The difference in company shares is an issue of voting rights rather than cost. Shareholder votes are important for election of the board of directors, consideration of critical corporate policies and approval of mergers and acquisitions. Companies have issued shares with no or reduced voting rights to maintain company control in the hands of founders and companies ranging from Ford Motor to Alphabet (Google) have used the strategy. Facebook founder Mark Zuckerberg has an additional twist; he owns shares with 10 times the voting power of other shares and every share he sells automatically converts to the lower vote status.

It would seem obvious that all shareholders should have equal voting rights. Without voting rights, shareholders have little recourse when problems arise or insiders enrich themselves at the expense of the shareholders. But many shareholders, particularly individuals, have little interest in voting or the capacity to evaluate complex corporate issues. Limited voting rights concentrate power in the hands of investors, who may conceivably be more interested in buying stock with concentrated voting capabilities. Concentrated voting can also insulate companies from “activist” shareholders who buy the stock and then press for major changes. Whether these activists are really interested in the company’s long-term performance or just a quick profit from a jump in the stock price is open to debate.

Snap Inc. went public earlier in 2017 by issuing shares with no voting rights, leaving 99% of the voting power in the hands of the founders. Facebook proposed, and later withdrew, another class of shares to further concentrate voting rights. These and other recent corporate changes prompted Standard & Poor’s, the keeper of the S&P 500 index among others, to announce it would no longer consider companies with multiple share classes for its US indexes. (This change will only affect companies being added to the index in the future, not those currently in the index.) FTSE Russell, another big index data provider, will require a minimum amount of voting shares to be in the hands of the public rather than insiders. With the growing popularity of indexing among investors, companies will likely reconsider the benefit of restricting voting at the expense of excluding a large pool of investors.

There are, however, other approaches to allow widespread voting while discouraging short-term activists and traders. “Tenure voting” grants greater voting rights the longer an investor owns the shares. This may mean that the investor gets no vote until a certain period has passed or that the investor gains more votes the longer they own the shares. A new exchange called the Long-Term Stock Exchange (LTSE) has launched in Silicon Valley and applied for SEC approval. LTSE will require companies to have tenured voting and will ban tying executive pay to the company’s short-term financial performance, among other measures.

Even tenured voting has its drawbacks. Long-term shareholders gain more voting power and may be less inclined to wield that power productively. And if long-term public shareholders accrue greater voting power, so will company founders, which is one of the problems tenured voting is trying to address.

Caveat emptor has always applied to investing and the costs of mutual funds and the voting rights of stock may be as important as the underlying investment itself.