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Mutual fund fee changes...


Not mentioned here yet. I'm not American and I dunno how the fee structures work there but their regulator is proposing changes. This was emailed to me in one of my emails from a fav blogger. He must have American investors that follow him.
Two links:
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or use this tiny url link:
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Reply to
The Henchman

"The Henchman" writes:
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His description of the share classes is pretty okay, though the levels he gives as examples or ranges seem a bit off. For example, he says that A shares have front loads of 6.25% to 8.5%. The range is wider than that and it also doesn't mention breakpoints. By way of easy examples (two of the largest funds in the world, both of which are available in multiple share classes: Growth Fund of America A shares have a 5.75% load PIMCO Total Return A shares have a 3.75% load
And breakpoints are reductions in those loads when folks invest larger amounts up front (or commit to adding larger amounts over certain time periods). Say FundX has a front load of 5%, it may have only a 4% load on investments between $25,000 and $50,000, and it may have a 3% load for investments greater than that. (Example numbers from SEC answers page about breakpoints).
Nevertheless, he gives a passable description of how load funds with typical A, B and C classes of shares work, and makes the point that different share classes may be the most cost effective for different investors and their behavior. He doesn't mention the availability of no-load funds, but that's a different issue, I suppose.
Also, I, for one, would prefer that he didn't use the term "financial advisor" and instead stuck with what I believe is the less misleading term "broker" or "salesperson", but alas, we seem to be stuck with salespeople using the term "financial advisor" now.
I do like the summary of the proposed changes. No more "12b-1" fees, but instead, much more honestly labeled "ongoing sales charges" and "sales and marketing fees". And the apparent death of the C class, which is probably a good thing.
Here's another article talking about the proposed changes:
(or )
Not surprisingly, the reaction is mixed - folks love to claim to be in favor of more clarity and labels for things which reflect what they are -- but then some of those same folks start fear-mongering that making this kind of change is going to hurt the little guys (and it's only a small coincidence that it helps the folks selling product to those little guys). Like this, from the ICI (which the article doesn't mention is the national association of US investment companies - ie. not a disinterested organization...):
A 2005 study by the ICI found that about 40% of 12b-1 fees went to pay advisers for initial sales, while approximately 52% of the fees were being used by fund companies to provide ongoing support to clients. The ICI says eliminating 12b-1 fees would get rid of any incentives advisers have to provide clients with investment advice.
Hopefully, renaming the 12b-1 fees and making the thing a bit more transparent may help remind folks how much they actually are paying for the advice and give them an incentive to weigh out just how much they think that the advice they're getting (if they actually are getting any) is worth.
--
Plain Bread alone for e-mail, thanks.  The rest gets trashed.
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BreadWithSpam

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