April 26, 2010

Still Paying Mutual Fund Commissions???

I come across a myriad of investors in my workshops and the question of mutual fund commissions still arises and continues to amaze me.  Don't take this the wrong way because I understand this is a business I understand well and most don't but please use common sense!  Heck I'm no mechanic but when I go to get my oil changed and the guy says, that'll be $475, I know something isn't right.

As recently as the early 90's, stockbrokers got paid as much as 8.5% of the total investment to steer clients towards a particular mutual fund!  Insurance guys still see those kinds of commissions. 

Believe it or not, stockbrokers and financial advisors still get paid as much as 5% for some mutual funds and sometimes this fee is taken out of the original principle which means all of your money isn't going to work immediately, this ought to be a crime.  When the 5% is not seen or 'hidden', clients are told not to worry, there is no commission, arrgghhh!

What happens is that the mutual fund wants the money back that they paid to the stockbroker or financial advisor.  Either one of two things; that mutual fund will be charging you 1-2% a year more or there is a lock up period whereby if you sell that mutual fund, you will be assessed a fee.  Neither is good and both are bad.

What to do?  If you are convinced you need to own a mutual fund, ok, then, look for;
  • no load mutual funds
  • no lock up period whereby selling incurs a cost
  • very low fees lower than 0.5%
Buy through a well known discount brokerage firm which by the way will offer advice for free.  That's it.  Stay away from high fee mutual funds, loads, stockbrokers and financial advisors.

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