Load vs. No Load Mutual Funds
Etnyc
time to conduct your own research or need somebody to hold your hand.
Other then that you just plain out 5% or so. Nowdays there is plenty of
understanable investment information you can easily access to make your
own decision. Most investors will be better of with one to three major
well known mutual fund then with a brocker trading for them.
Et
George Matthew Regnery
Well, I can think of a legitimate reason to have a back-end loaded fund,
especially if the load fees are distributed to the fund, and not to the fund
management company.
When you cash out of a mutual fund, basically everyone else in the mutual
funds bears some of the costs, because the fund has to sell assets and incur
brokerage fees. Of course, all funds have some very short term cash
reserves, and can match new purchases and sales. But if too many people cash
out, then the other shareholders bear some of the cost. A back end load
discourages "market timers" and other switching types. If the fund
management company adds the load proceeds to the fund's assets, then that, in
some way, compensates the other shareholders.
Some funds have diminishing back end loads, to encourage people to keep money
in the fund for an extended time span.
--
George M. Regnery | "Geschichte ist keine Abfolge von Daten, sondern ein
reg...@ix.netcom.com | sich ueber die Dimension der Zeit erstreckendes Netz
----------------------| in welchem Vergangenheit, Gegenwart und Zukunft
zusammengewoben sind als Schicksal." --Cusco, von Ring der Delphine
William Rini
--
bil...@rain.org
http://www.rain.org/~billman/syn.html
Larson Douglas Hudson <ldhu...@jcbradford.com> wrote:
>As the mutual fund marketplace becomes increasingly competitive,
>consumers are becoming more cost-conscious in their investing habits.
>No-load funds may appeal to the investor who wants to put all all of his
>or her money to work right away. And many investors may not recognize
>the added value investment professionals bring to the table. Before
>balking at the idea of paying a sales charge, you may want to review the
>following points.
>
>1. Investors get what they pay for. It's easy for an investor to guess
>what he or she may need for the future. But by guessing too high,
>investors may take unnecessay risks to "over-achieve," and fail to earn
>the returns they will actually need to provide for the future. When
>investors guess too low, they may not have enough. Investment
>professionals can provide much of the information many investors need to
>determine theri future financial needs, set realistic long-term goals,
>and develop an investment plan that can helpt them reach those goals.
>
>2. Part of an investment professional's job is to know the markets.
>Today, there are nearly 5,000 mutual funds available-more choices than
>you'll find on the NYSE. And just like on the stock exchanges, it's not
>always easy to tell the winners from the losers. Sifting through them
>is a complex, time-consuming job. And making the wrong choice can be
>much more expensive than the one-time sales charge of less than 5
>percent.
>
>3. A financial adviser can help investors monitor their investments on
a
>regular basis, and modify their portfolios as their needs change.
>Investing is a process, not a one-time decision. Successful investors
>review their portfolios regularly and make adjustments when necessary.
>By monitoring current market conditions and changing personal needs, and
>investment professional can keep assets invested in teh types of mutual
>funds that are best suited to help an investor meet his or her goals.
>
>
>
>
>--
>Larson Douglas Hudson, Investment Broker
>J.C. Bradford & Co.
>330 Commerce Street, Nashville, TN 37201, USA
>email: ldhu...@jcbradford.com phone:(800)748-9569
>
>
Paul Maffia
>In addition, many load funds offer B-shares that essentially eliminate
>any sales commission for the long term investor. To be clearer, they are
>simply shares that carry declining back-end loads, which usually
>disappear after the 4th year. My clients know that their mutual fund
>investments are a longer term play. The philosophy of mutual funds is
>not TIMING, but TIME.
What unadulterated BS. Typical garbage coming from a commission wonk. And
a clear illustration of the type of broker to steer clear of.
"B" shares may have a declining back-end load that disappear after a
stated time period. But you carefully managed to avoid ponting out that
they carry hefty 12B1 fees whose sole purpose is to pay commissions to
"brokers". And when they fail to point out this simple fact, they just
have not earned those continuing commissions for themselves and their
employers.
Paul M.
George Schmitt
> brokers. His belief that B-shares are "expensive and bad" for investors
> has no basis in fact. I won't even bother addressing it. The topic of
Get out the latest Barron's (date Apr 10 1995) and look through
the quarterly fund section. Notice that the B shares have higher
12b-1 fees. Notice that whereas an "A" share might have 0.25, the
"B" shares might have 1.00. Please bother to address this issue.
Thanks
-George
Bill Sullivan
<ldhu...@jcbradford.com> says:
[snip]
>unwarranted. In addition I feel that when posting, it is proper to stick
>to the topic at hand and refrain from slanderous/grandiouse language. It
>is my hope that an intelligent exchange of ideas can take place without
>it degenerating into petty misplaced character attacks.
[snip]
If one wishes to practise grandiloquence, one may. And then one's language would
be grandiose.
Not just a commission wonk. A defensive commission wonk. :-)
Bill Sullivan
Seth Jackson
:
: Well, we all now know how Mr. Mafia feels about load funds and investment
: brokers. His belief that B-shares are "expensive and bad" for investors
If you disregard his inflammatory language, there's still the point that
"B" shares carry 12b-1 fees. This is a valid point, and I can't find any
valid reason why you would not want to address it.
--
Seth Jackson
Arthur Wouk
Larson Douglas Hudson <ldhu...@jcbradford.com> wrote:
>1. Investors get what they pay for.
first fallacy. where are the stockholders yachts?
>2. Part of an investment professional's job is to know the markets.
second fallacy. sheep know the grass, yes.
>3. A financial adviser can help investors monitor their investments on a
>regular basis, and modify their portfolios as their needs change.
anyone who needs such advice doesn't belong in the stock marjet.
--
--
arthur wouk
internet: wo...@cs.colorado.edu
Marc San Soucie
> Larson Douglas Hudson <ldhu...@jcbradford.com> says:
> > In addition I feel that when posting, it is proper to stick
> > to the topic at hand and refrain from slanderous/grandiouse language. It
> > is my hope that an intelligent exchange of ideas can take place without
> > it degenerating into petty misplaced character attacks.
> If one wishes to practise grandiloquence, one may. And then one's language
> would be grandiose.
> Not just a commission wonk. A defensive commission wonk. :-)
Funny. We've seen a few classic trolls from commission-hungry brokers in
this group over the last year or so, but Mr. Hudson's didn't strike me
that way at all. His original post contained three quite reasonably stated
arguments for why *some* people might benefit from the help of commissioned
brokers. While I wouldn't pay for his services, I certainly can't see how
his comments deserve ridicule. And he has been quite polite.
Marc San Soucie
Portland, Oregon
ma...@netcom.com
mgle...@freenet.vcu.edu
>>1. Investors get what they pay for.
>first fallacy. where are the stockholders yachts?
You'll find most yacht owners have product advisors :)
>>2. Part of an investment professional's job is to know the markets.
>second fallacy. sheep know the grass, yes.
?
>>3. A financial adviser can help investors monitor their investments on a
>>regular basis, and modify their portfolios as their needs change.
>anyone who needs such advice doesn't belong in the stock marjet.
Or instead of the "I have all day, to brouse through H.Q. or
Wal-Mart to find what I'm looking for" type of investor;
someone has his OWN profession so doesn't have the time or
INTEREST (yes, some people find investing and money matters
BORING!) They'll go to the local hardware and ask a
professional they trust to save their time.
Mike
--
Mike Gleason, Partner | "I ask, sir, what is the Militia?
Financial Services Consultants | It is the whole people, except
life & disability insurance | for a few public officials."
1-800-969-4151 Richmond, VA |George Mason, Author 2nd Amendment
William Rini
pay brokers the 5%. If you are educated enought to run your own
investments, then by all means do so, but don't bash brokers for helping
the others who can't.
--
bil...@rain.org
http://www.rain.org/~billman/syn.html
et...@aol.com (Etnyc) wrote:
>The only way it makes sense to buy load funds is if you cannot devote
the
>time to conduct your own research or need somebody to hold your hand.
>Other then that you just plain out 5% or so. Nowdays there is plenty of
>understanable investment information you can easily access to make your
>own decision. Most investors will be better of with one to three major
>well known mutual fund then with a brocker trading for them.
>
Martin Herbordt
In article <3mdu0e$b...@freenet.vcu.edu>, mgle...@freenet.vcu.edu writes:
|>
|> >>1. Investors get what they pay for.
|>
|> >first fallacy. where are the stockholders yachts?
|>
|>
|> You'll find most yacht owners have product advisors :)
Undoubtedly correct!
But, is `product advisor' the latest marketing-speak for
`stock-broker'? Has `stock-broker' taken on such a
perjorative connotation that brokerage firms
(advisement firms???) have found it necessary
to change the name of the position?
-Martin Herbordt
(ObA: But it's because we do MORE than sell stocks.)
William Rini
same expenses, front end or back end load. If you don't pay them front
end then you have to pay them somewhere.
The reason for back end load funds is simple.....most people are idiots
and given the choice between paying a front end load or buying a backend
load and paying higher fees over many years, they will pick the back end
load. No matter how much you can show them that this is the worse option
of the two, they will choose back end load because they don't see the
money they pay.
--
bil...@rain.org
http://www.rain.org/~billman/syn.html
sch...@cmf.nrl.navy.mil (George Schmitt) wrote:
>
>> brokers. His belief that B-shares are "expensive and bad" for
investors
>> has no basis in fact. I won't even bother addressing it. The topic
of
>
David Bakken
>>>3. A financial adviser can help investors monitor their investments on a
>>>regular basis, and modify their portfolios as their needs change.
>>anyone who needs such advice doesn't belong in the stock marjet.
>Or instead of the "I have all day, to brouse through H.Q. or
>Wal-Mart to find what I'm looking for" type of investor;
>someone has his OWN profession so doesn't have the time or
>INTEREST (yes, some people find investing and money matters
>BORING!) They'll go to the local hardware and ask a
>professional they trust to save their time.
Only if they really have 5% or so to throw away. They can
just get the annual Forbes report on mutual funds (out in
late August), arguably the best and most concise. And if
they choose a reasonably diversified set of 5-10 any mutual
funds that finished in the top third or so of Forbes' ranking
for their category, then the investor will probably do as well
as with a broker/advisor, or maybe even better -- they can avoid
the herd mentality of professional investment advisors. Or
they can just throw darts at a stock sheet and do practically
as well.
--
Dave Bakken, dba...@bbn.com, +1 617 873 6072
``If Nicole Simpson had owned a handgun, she'd be a wealthy widow today...''
-- unknown, quoted by Jeff Cooper
Seth Jackson
: I'll address it, the reason for the higher fees is because they have the
: end then you have to pay them somewhere.
Exactly. And this is precisely the point Paul was making. Mr. Hudson, in
his espousal of load funds, said that "B" shares eliminate the loads for
long-term investors. As you yourself have shown here, this is just so
much poppyyacht, er, I mean poppycock.
: The reason for back end load funds is simple.....most people are idiots
: and given the choice between paying a front end load or buying a backend
: load and paying higher fees over many years, they will pick the back end
: load. No matter how much you can show them that this is the worse option
: of the two, they will choose back end load because they don't see the
: money they pay.
And I would submit that the reason for front end load funds is the same
as the reason for back end load funds. Given the choice between paying a
load and not paying a load, why would anyone choose to pay a load?
--
Seth Jackson
William Rini
>
>>Or instead of the "I have all day, to brouse through H.Q. or
>>Wal-Mart to find what I'm looking for" type of investor;
>>someone has his OWN profession so doesn't have the time or
>>INTEREST (yes, some people find investing and money matters
>>BORING!) They'll go to the local hardware and ask a
>>professional they trust to save their time.
>
>Only if they really have 5% or so to throw away. They can
>just get the annual Forbes report on mutual funds (out in
>late August), arguably the best and most concise. And if
>they choose a reasonably diversified set of 5-10 any mutual
>funds that finished in the top third or so of Forbes' ranking
>for their category, then the investor will probably do as well
>as with a broker/advisor, or maybe even better -- they can avoid
>the herd mentality of professional investment advisors. Or
>they can just throw darts at a stock sheet and do practically
>as well.
that much trouble. Not knowing about investing may sound silly to you,
but there are people out there that only know of mutual funds as
something they always hear about on TV and from friends. It's a personal
choice of the particular investor.
I'm sure if I wanted to I could be my own auto mechanic, I could read
books on how cars operate and learn how to overhaul an engine, but I
don't have any desire to. I would rather pay a mechanic more than his
worth to do it for me. That's my choice. Am I an idiot because I can't
change my own brakes? No, I choose to spend my time on other
pursuits. Then why is it wrong for someone to pay someone to give them
some advice on how to invest their money? If they feel that they are
getting a fair value for the commission they pay then that's their
business and should not be the topic of debate by those who choose not to
invest that way.
Dennis Yelle
>
>If they feel that they are
>getting a fair value for the commission they pay then that's their
>business and should not be the topic of debate by those who choose not to
>invest that way.
We don't need your permission to chose our discussion topics, William.
We know that you sell mutual funds to your marks^H^H^H^H^Hcustomers and
put the load in your pocket. You are not an unbiased source.
We will continue to let everyone know that better funds are available
to all for no load via a toll free phone call.
The only people who tout load funds are salesmen.
--
den...@netcom.com (Dennis Yelle)
"It's a small mind that can think of only one way to spell a word." -- M. Twain
Marc San Soucie
> Given the choice between paying a
> load and not paying a load, why would anyone choose to pay a load?
Actually, there is one potentially redeeming value to loads on funds.
They can serve to reduce the tendency of hot funds to attract vast
quantities of money, thereby keeping them smaller, and potentially
more nimble. We do frequently complain about sudden growth in popular
no-load small-cap funds, after all.
sepa...@ais.net
> In article <3m674i$a...@adam.telalink.net>,
> Larson Douglas Hudson <ldhu...@jcbradford.com> wrote:
>
>
> first fallacy. where are the stockholders yachts?
>
>
> second fallacy. sheep know the grass, yes.
>
> >regular basis, and modify their portfolios as their needs change.
>
> anyone who needs such advice doesn't belong in the stock marjet.
The stock market is like any other thing that someone tries to do.
If you want to do well in something, invest the time needed to do
it well, or atleast in an informed way. Paying someone to play with
your cash can work, but you can also just be throwing away your
money. Whether loaded or not, past history for a funds returns in
the last cycle that most compares to the current one will most often
be more fruitful than a commision alone.
William Rini
>In article <3mi79l$m...@data.interserv.net> William Rini
<bil...@centcon.com> writes:
>>
>>If they feel that they are
>>getting a fair value for the commission they pay then that's their
>>business and should not be the topic of debate by those who choose not
to
>>invest that way.
>
there are people who load funds are suitable for and those who are not
suitable should not be so consumed with the topic. If someone makes a
choice to buy a load fund instead of going out and doind their own
research, who are you to tell them they are wrong?
Secondly, you are completely wrong. I have said many many times that I
am not a retail broker. I don't solicit any investments. The fact that
you totally took that last paragraph out of context so that you could
feed your ego by attacking me shows what a very sad little man you are.
Jim Craft
On Thu, 13 Apr 1995 Dennis Yelle <den...@netcom.com> retorted with:
:In article <3mi79l$m...@data.interserv.net> William Rini <bil...@centcon.com> writes:
:>
:>If they feel that they are
:>getting a fair value for the commission they pay then that's their
:>business and should not be the topic of debate by those who choose not to
:>invest that way.
:
:We don't need your permission to chose our discussion topics, William.
:We know that you sell mutual funds to your marks^H^H^H^H^Hcustomers and
:put the load in your pocket. You are not an unbiased source.
:We will continue to let everyone know that better funds are available
:to all for no load via a toll free phone call.
:
:The only people who tout load funds are salesmen.
Well I bought the Seligman Communication and Information A Fund
because it's the best sector fund out there. Show me another fund
that has a history as good as it that is no load. I bought it after
doing my own research, with which I drove my wife crazy with BTW, and
did not need to ask my broker as whether or not it was a good fund.
The numbers are right there ...
If you guys have such an aversion to paying commissions what do you do
when you buy an automobile, clothes, computer equipment, and a many
other items for which the salesman is paid a commission for the sale?
Until you've worked as a commission sales person you have NO idea what
the hell you are talking about. It can be demoralizing, degrading (as
some of you guys are forcing), and at times unbearable. You don't
bash the sales person because he's commission, you bash the bloody
management that forces them to work as commissioned employee's.
Don't make fun of the pizza delivery person until you've delivered a
few yourself!
Jim
--
Jim Craft
Disclaimer: "Maybe all I need besides my pills and the surgery
is a new metaphor for reality" -- Dis con nec ted
Queensryche, Promised Land (1994)
William Y Huang
I like back loaded fund. Reasoning: Good no-load funds, like Magellan
or Ultra, quickly grows to multi-billion dollars and become virtually useless.
Back loaded funds discourage people from liquidating during an economic
downturn .... which hurts everyone in the funds. I know the statistics
are not on my side but ....
FYI I invest in Alger fund (midcap, smallcap, and growth).... small, good
consistent performance, and nobody's ever heard of it! Perfect as far as
I'm concerned.
William Rini
based on what the no load advocates are saying? Even if the numbers
prove you wrong, but it psychologically makes you feel better knowing
that people will incur a penalty for bailing on the fund during a bad
market.
This is not a black and white issue people. Load fund advocates will
usually conceded that there are many good no loads, finding a no load
advocate that can do the same about load funds is rare. Of most of the
rubbish going back and forth on this subject, I have noticed some very
interesting things.
First, even when the subject had nothing to do with no loads (ie the
discussion was on the differences between front end load and back end
load funds), no loaders felt the overwhelming need to jump in and take
quotes out of context to switch the debate back to load vs no load.
Second, the no load camp seem to be a RIGHT or WRONG bunch. Whenever the
subject of choice between load and no load comes up, they don't want to
let people like William here make that choice. According to many of the
no loaders, William has had to have been tricked into buying load funds
by evil, vile, salesmen (brokers).
Third, other than a small bunch (yes Paul Mafia you are part of the
small bunch that actually knows what you are talking about as far as
numbers and returns go), most no loaders just blindly spout off
information they have heard others say. Many don't even understand the
concepts behind the claims they make, but they heard someone else say it
and they don't like paying commissions, so it must be true.
I said it before but the only use that came out of it was one no loader
misquoted it to serve his own purposes, but I'll say it again. It is a
matter of choice, if I don't feel like going out and buying a book,
crawling underneath my sink, and unclogging my drain myself, I hire a
plumber. Could I do it myself? Probably. Do I want to? No. Am I
willing to pay $75 for someone else to replace a $5 piece of plumbing?
Yep. The same goes for load funds, many people don't want to take the
time and put in the effort to make their own choices, so they willingly
hire a broker to do it for them. And as long as the broker is doing a
good job and choosing funds with respectable performance with regards to
the amount of risk the client is willing to endure, then that's what they
should be able to do.
George Nassiopoulos P-353 495-7181
: Until you've worked as a commission sales person you have NO idea what
: the hell you are talking about. It can be demoralizing, degrading (as
: some of you guys are forcing), and at times unbearable. You don't
: bash the sales person because he's commission, you bash the bloody
: management that forces them to work as commissioned employee's.
^^^^^^
wow! sounds like slavery...
George Nassiopoulos
nas...@cfa.harvard.edu
Tracy Monaghan
...more like indentured servitude.
Tracy <mona...@cac.washington.edu>
Professional Computuhsaurus Trainer
University of Washington
Seattle, Washington
pmitra@.oracle.com
> business and should not be the topic of debate by those who choose not to
> invest that way.
>
>
planner suggested stocks consistently beaten the market? I was reading a
book which says that in most cases such folks would like to sell what is
most profitable to them - not the customer. This is understandable if I
were a broker I would have done the same. From the customer's point of view
if he bought funds/stocks by "throwing darts at a stock sheet" as suggested
above I believe he would have done a decent job. Now don't tell me choosing
a random
collection of funds or an index fund is tough.
Seth Jackson
Could you be a little more careful with your attributions? I did *not*
write the paragraph that you attributed to me.
William Y Huang (wyh...@raman.ucsd.edu) wrote:
: I like back loaded fund. Reasoning: Good no-load funds, like Magellan
: In article <3mios1$5...@hollywood.cinenet.net> spe...@news.cinenet.net (Seth Jackson) writes:
: >
: >
: >: The reason for back end load funds is simple.....most people are idiots
: >: and given the choice between paying a front end load or buying a backend
: >: load and paying higher fees over many years, they will pick the back end
: >: load. No matter how much you can show them that this is the worse option
: >: of the two, they will choose back end load because they don't see the
: >: money they pay.
: >
--
Seth Jackson
William Rini
funds out there. With the constant bashing by Money Magazine, other
media and folks in discussion forums like this, I find it funny that load
funds like ICA remain some of the largest (as measured by assets under
managment).
And what people are paying for is service and piece of mind. I have one
former client that I still give advice to (without any sort of
compensation) that says I'm not his broker I'm his shrink. There have
been several times he has called me worried about an investment, ready to
bail out, and I simply make him review his reasons for buying it in the
first place, ask him if any of those conditions have changed, and then
ask him based on that, do you still think you should sell the stock. That
is what you are paying for, and if your broker is not giving that to you,
find another broker, don't insult me and the industry.
Seth Jackson
: I didn't ask for your permission. I was simply making the point that
: there are people who load funds are suitable for and those who are not
: suitable should not be so consumed with the topic. If someone makes a
: choice to buy a load fund instead of going out and doind their own
: research, who are you to tell them they are wrong?
While I have and will continue to argue against load funds, I think the
above statement is valid, and I can't go along with blanket statements
condemning all stock brokers are sleazoid semi-crimials. Blanket
generalizations like this have a tendency to be wrong and sometimes even
dangerous.
I do think there are a lot of sleazy practices in the investment
industry, and many are caused by the pay structure in most investment
companies. That's not to say that a broker can't provide a valuable
service to an investor who simply can't or doesn't want to do the
research himself.
The fact that we are reading this newsgroup is an indication that we all
have some level of interest in mutual fund investing, and for people like
us, I would say that there is rarely a good reason to buy a load fund. If
anyone asks my personal advice, whether they read this newsgroup or not,
I would recommend no-load investing. But I don't see a need for personal
attacks on a whole group of people because they are making money advising
people who can't or won't do the work themselves.
BTW, in the only dealing I ever had with a broker, I got screwed pretty
badly. Fresh out of college, with a few grand to play with, I went to a
Merrill Lynch broker with a specific investment in mind. He managed to
talk me out of it and into something "just as good" because he woudn't
have made a commission on the investment I wanted. My investment ended up
more than quadrupling in value within 6 months; his investment lost all
of its value. Of course, I had my money in his investment, not mine.
I still won't write off the possibility that there actually might be some
brokers out there, although I doubt I'll be using one any time soon. I
would feel better about the profession as a whole if I started seeing
evidence that brokers were being honest with their clients about the costs
and available investment options. Maybe some SEC regulations are needed
to change the pay structure so that brokers' best interests coincide with
their clients' best interests.
--
Seth Jackson
J bruce Havekotte
financial advisor for youself as opposed to the best investment for
yourself. Go to seminars; read; learn the difference between legitimate
input and marketing hype. The more you know about investing the better
equiped you are to choose an advisor that shares your best interests.
Major point: If he (she) charges a commission there is a basic conflict
of interest!
-
J BRUCE HAVEKOTTE SLD...@prodigy.com
John Healey
I would recommend that you research funds with either a back-end load
that can be phased out after 4 to 5 yrs or a no-load proprietary fund.
** I also would not invest in "ANY" fund that has in excess of $250
million.
** Remember the more money the fund manager has in the fund
the more difficult it will be for him to bring in higher returns.
I hope this helped.
John Healey
I dont think so.
J bruce Havekotte
500. This is a large cap rally.
Sanjay
Hi:
I think one should invest, in a fund that gives more bang
for their buck regardless of load or no load fund. One
should not look at fund from "load" or "no load" perspective
but from "return" perspective.
Everybody has different investment philosophy, but within
the sectors (e.g. fixed income, stocks, global, currency,
gold, etc.), try to find the best mutual fund, that gives
more return for a particular time-horizon. Of course in
case of load funds, the return should be at least equal to
the sales charge plus return on the similar no load fund.
There is nothing wrong with Load funds, but their return
should be better than no load funds, in order to justify
their "sales charge" to their shareholders...
Of course, if you feel you are not getting the returns, from
your "load" fund as compared to "no load" fund, you can
always switch. But, remember, you are making investment
decisions, for long haul and not for 1-2 yrs.
--Sanjay
** of course, these are my views only.**
** Do your research before investing..**
William Rini
make a lot of worthless claims too.
I'm not defending load funds here, but if you are trying to advocate
no-loads you are doing them a diservice by using such illogical examples.
Otherwise everybody will be running return numbers through their
computers and coming to conclusions like:
In 1982 during the months of July and December, 4 load funds beat the
S&P500 and no noloads beat it during that time period, so load funds
perform better in July and December. Or maybe that the computer shows
that immediately following an earthquake, no loads showed better
performance than load funds, so buy no loads right after a major
earthquake.
NOTE: I MADE THIS DATA UP FOR THE PURPOSE OF ILLUSTRATION.
William Rini
>
>BTW, in the only dealing I ever had with a broker, I got screwed pretty
>badly. Fresh out of college, with a few grand to play with, I went to a
>Merrill Lynch broker with a specific investment in mind. He managed to
>talk me out of it and into something "just as good" because he woudn't
>have made a commission on the investment I wanted. My investment ended
up
>more than quadrupling in value within 6 months; his investment lost all
>of its value. Of course, I had my money in his investment, not mine.
>
>I still won't write off the possibility that there actually might be
some
>brokers out there, although I doubt I'll be using one any time soon. I
>would feel better about the profession as a whole if I started seeing
>evidence that brokers were being honest with their clients about the
costs
>and available investment options. Maybe some SEC regulations are needed
>to change the pay structure so that brokers' best interests coincide
with
>their clients' best interests.
>
>--
>
> Seth Jackson
compensation.....the firms. And their interest is in tying both the
broker and the client to the firm as best as possible. Is it any mystery
why, when a new broker comes aboard, they take him and fill him with
product knowledge of the firm's products, pay special incentives for
selling those products and then agree not to agree with the other firms
about transfering in house mutual funds out to another firm. It ties the
customer up, forcing him/her to either sell or stay with the firm, and it
keeps the broker from leaving if he should feel his/her client's
interests might be better served somewhere else.
What is amazing, and of course we don't see much in the press about it,
but I see it every day in my work, is that there are a good number of
brokers deciding to go independant. They don't work for a firm, they
hire a brokerage to be their clearing agent. They seem to sell a lot of
no load funds as an accomodation to their clients. Some even use it as a
marketing tool. Why is it when freed from the big brokerages, brokers as
a whole (there are always exceptions) seem to work for lower commissions
and sell products that either make them very little money or none at all.
Could it be because they don't have a branch manager breathing down their
necks because their gross was down for the second month in a row? From
my discussions with these brokers, that seems to be the biggest reason.
Of course they would like to make money selling these types of products,
but they feel that it helps establish a relationship, something that they
felt they could not do when they had production numbers to meet.
Robert Gresham
>BTW, in the only dealing I ever had with a broker, I got screwed pretty
>badly. Fresh out of college, with a few grand to play with, I went to a
>Merrill Lynch broker with a specific investment in mind. He managed to
>talk me out of it and into something "just as good" because he woudn't
>have made a commission on the investment I wanted. My investment ended
up
>more than quadrupling in value within 6 months; his investment lost all
>of its value. Of course, I had my money in his investment, not mine.
>
You are certainly willing to take a swipe at a particular firm. To be
fair, you should also list the SPECIFIC investments and the SPECIFIC time
frame involved. Until you do that, this part of your post looks like so
much bs. BTW, there will probably be a severe restructuring of the
pricing structure of the securities industry sooner rather than later. I
continue to be absolutely amazed at the number of folks here and
elsewhere who dwell on the commission issue. I suspect it is because
people become as little children when their money is involved; and little
children like nothing better than pointing fingers, whining, and
diverting adult attention from their own behavior.
Robert Gresham
>I'm afraid we won't see that anytime soon. Who advises the SEC on
broker
>compensation.....the firms. And their interest is in tying both the
>broker and the client to the firm as best as possible.
big part of its business to asset based instead of transaction based
pricing. It is coming sooner rather than later. The Tully Commission
doesn't have just broker-dealers on it, also.
>but I see it every day in my work, is that there are a good number of
>brokers deciding to go independant.
I agree and think this trend will continue. Have just switched from
independent firm back to wirehouse, though<g>. Got tired of dealing with
operations over 800 numbers and voice mail, and also got tired of all the
minutiae. With the big firms, you get less payout and more sales pressure.
In return you get infinitely deeper resources.
>but they feel that it helps establish a relationship, something that
they
>felt they could not do when they had production numbers to meet.
depends on the manager. usually, the "sales pressure" argument is flawed.
If you want to sell something "vanilla" enough to carry smaller fees, you
should be able to sell more of it. If you can't, you need to find other
products or investor types to work with. IMHO. Regards
Paul Maffia
>Load and no-load funds generally invest in smaller companies than the S&P
>500. This is a large cap rally.
Sorry, but you are totally wrong.
Some funds (both load and no-load) invest in smaller companies than the
S&P. Some invest only in large cap funds. Some invest across the spectrum
of both large cap and small cap. The variations possible are infinite
and if one looked at the 5000+ universe of funds, one will find all kinds.
As for the statement that the rally is a large cap rally, again you are
off in left field. Most market indexes have been making new highs
including the Russell which only an idiot would claim was a large cap
index. Neither can the Wilshire 5000 rational be labeled a large cap index.
It is entirely possible and even logical that two people looking at the
same facts can have a difference of opinion. But before expressing your
opinion, at least be sure that the facts you have, have some basis in
reality.
Paul M.
William Rini
Merrill Lynch, I think he was simply trying to provide more information
tha most people who claim to have been ripped off. Seth has always been
pretty fair on this subject and although I can't say we agree on
everything, he does have an open mind.
The restructuring you speak of will only be minimal at best. Did you
actually read the SEC board recommendations? Brokers shouldn't get extra
payout for proprietary funds, new brokers should be kept on salary longer
and not forced to start generating commissions so soon, etc., etc. The
key word was RECOMMENDATIONS. Nobody is obligated to adhere to any of
them. Do you really think someone like Dean Witter (king of the
proprietary product pushers) is going to give up making their reps sell
Dean Witter funds without a fight? Not likely. There will be some
changes, that can't be avoided (have to keep the SEC happy) but there is
not going to be a major change in the way the Street does business.
I do however agree with your views on how people behave in regards to
commissions. If the issue of commissions was actually approached from an
intelligent standpoint, there might be some action taken to reform the
current structure. But instead, the sane voices get drowned out by the
whining and crying of those who take irrational positions. Much like
someone who recently emailed me in private, and said that he felt that it
was OK for a fee based advisor to charge for his services, but a
commissioned broker is not doing his job if he recommends load funds.
Yet later in the same letter, he admits to owning load funds in his IRA
because he was able to buy them at a reduced sales charge.
This sort of mentality reminds me of something that happened to a friend
of mine. He had a client who owned a very large position in a Franklin
Tax Free Fund (over the $1mil breakpoint). The client knew that if he
bought more, although he would not be charged the load, the broker would
be compensated from Franklin (1% up front + trailer fees). So he goes to
Franklin directly, and places his order, referrencing his existing
position so that he can avoid paying the load. Franklin turned around
and looked up the broker of record (my friend), and paid him the 1% + the
trailer fees. Did it have any effect on the client's return? No, they
would take the fee anyways. The client just didn't want the broker to
get paid.
William Rini
>I disagree. The firm I work for is already preparing to shift/shifting a
>big part of its business to asset based instead of transaction based
>pricing. It is coming sooner rather than later. The Tully Commission
>doesn't have just broker-dealers on it, also.
list of money managers approved by the firm, and then if you should
decide to leave in 2-3 years, the firm has your clinets tied up? Or do
you mean that they have a system (and promote it) where you manage the
money and get paid on the assets under management instead of commissions,
just like a financial planner?
>I agree and think this trend will continue. Have just switched from
>independent firm back to wirehouse, though<g>. Got tired of dealing with
>operations over 800 numbers and voice mail, and also got tired of all
>the minutiae. With the big firms, you get less payout and more sales
>pressure. In return you get infinitely deeper resources.
business, the clearing B/D is acting not as your boss but as a hired
resource. If they don't deliver, fire them.
>depends on the manager. usually, the "sales pressure" argument is
>flawed. If you want to sell something "vanilla" enough to carry smaller
>fees, you should be able to sell more of it. If you can't, you need to
>find other products or investor types to work with. IMHO. Regards
>
memos purposely circulated with production levels that would get axed if
numbers did not improve. I have seen 10 year veterans, doing 200K gross
get thrown in the bullpen because the BM felt that embarrassing them
would motivate them to work their books harder. Is this a blanket
accusation against all BM's? No, I have met some pretty upfront BM's
also (many here online) but I would have to say, that even they would
turn up the pressure to sell during a bear market. Since "shit rolls
downhill" the pressure comes from the top and ends up on the brokers
shoulders. I mean. look what happened over at Lehman. They quit paying
for the lunches of their traders who can't leave the floor. This was
done in the name of cost cutting, but was actually intended to be a
warning.
Bill Sullivan
(Robert Gresham) says:
[Snip]
>elsewhere who dwell on the commission issue. I suspect it is because
>people become as little children when their money is involved; and little
>children like nothing better than pointing fingers, whining, and
>diverting adult attention from their own behavior.
>
Commissions matter. You can pay Merrill Lynch prices, but those prices will have
a negative impact on your total return.
Merrill Lynch will tell you that their "expertise" makes up the difference. Anyone
who wishes to believe that is free to do so. People who do not wish to believe that
should not be accused of regressing to their childhood.
Bill Sullivan
Mark Freedman
William Rini <bil...@centcon.com> wrote:
>And what people are paying for is service and piece of mind. I have one
>former client that I still give advice to (without any sort of
>compensation) that says I'm not his broker I'm his shrink.
>There have
>been several times he has called me worried about an investment, ready to
>bail out, and I simply make him review his reasons for buying it in the
>first place, ask him if any of those conditions have changed, and then
>ask him based on that, do you still think you should sell the stock. That
That is an excellent approach. My own limited experience with brokers has
not been that positive, but it's up to the client to recognize
conflict-of-interest and move on.
>is what you are paying for, and if your broker is not giving that to you,
>find another broker, don't insult me and the industry.
>
>
=============
The following is my reply to an article submitted to the Personal Finance
Newsletter.
>
> From: Richard Budge <richar...@m.cc.utah.edu>
> Date: Sun, 9 Apr 1995 03:47:15 -0600 (MDT)
> Subject: Re: persfin-digest V1 #78
>
> EFur...@aol.com asked about load vs. no-load funds.
>
> The load on a fund is there to pay the salesperson who sold it to you,
> not to pay the investment manager of the fund.
Also be aware of incentive plans, e.g. free trips or other rewards for
top salepeople, and incestuous reslationships, e.g. brokers who promote a
particular fund without mentioning that the fund manager owns the brokerage.
> All funds, load or
> no-load, will have some percentage (on top of the load) that will be
> taken out yearly to pay the fund managers.
This usually includes a "trailer" fee, i.e. ongoing service charge
paid to the broker for ongoing support / advice. It usually seems to be
0.5% - 1.0%.
> This is usually transparent
> to the shareholders, since the return, etc., is figured out after the
> expenses are taken out.
Worth noting that management expense ratioalso includes trading costs,
i.e. a manager who trades actively will have higher costs. This may result
in better performance.
Also worth noting that some funds keep management fees very low. In some
cases, they impose minimum purchase amounts (e.g. Philips Hager & North
needs a $25,000 initial account spread among its funds). PH&N has some of
the lowest MER's available. Low MER's may produce better overall results.
> Thus, loaded funds are sold through the
> marketing companies, insurance agencies, etc., that have selling
> agreements with that mutual fund company, whereas with no-load funds, you
> can only deal with the mutual fund company itself.
In Canada, some brokers sell a variety of funds including no-loads.
Several (Mutual Funds Direct among them) don't charge the front load or
switching fees - they rely entirely on the ongoing trailer fees for revenue.
For information only (not a recommendation) MFD's Canadawide number is
1-800-268-1066. My only connection with MFD is that I bought a few
front-load funds through them and saved the 5% commission.
> A loaded fund many
> times will not outperform a no-load fund simply because of the money
> being taken out to pay the salesperson
>
A front-load fund reduces the amount of your initial investment.
Rear-load funds often pay the salesperson an upfront commission, then recoup
the money by charging higher management fees. In many cases, the redemption
fee decreases over time. In some cases, the redemption fee is a percentage
of the initial investment, in others, of the value at time of redemption.
Some funds allow a partial redemption, e.g. <10%, without triggering the
fee.
Also worth considering are switching fees and limitations. Some fund
families (and Mutual Funds Direct) allow switching between funds (e.g. from
blue chip equities to bonds to small cap equities to resources to ...)
without a fee. Some limit the number of times one can switch / year
(Altamira had problems with a few people constantly switching, so they
imposed an annual limit).
> There are two reasons buying a loaded fund would make sense: one, when
> the loaded fund is outperforming the rest of the market or would have
> some other benefit that would justify the load; and two, when you buy a
If bought through a discount-broker or a no-commission dealer like MFD,
one can decide entirely on the basis of the fund.
> loaded fund, you are essentially buying the services of the investment
> professional who sold you the fund. He (or she) can help you find the
> fund that is right for you, set up the right mix of investments, etc.,
> and will be there later to answer any questions you might have about your
> investment. In many cases, this might also justify paying for the load.
>
In my experience, investment advisors have too strong a
conflict-of-interest to provide worthwhile advice. Many people suffer from
EGO (eyes-glaze-over) problems when dealing with investments. They may have
to rely on a salesperson. IMO Anyone investing money should also invest a
little time reading and, if relying on someone else's advice, insist on
reasoning behind that advice.
> By the way, a 5% front load is identical to a 5% rear load. The amount
> taken out up front would have grown at the same rate as the rest of your
> money and you would have the same amount coming out of the fund anyway.
>
Not necessarily, for the reasons outlined above. Also, a front-load is
negotiable (discount brokers may charge 1%-2% depending size of purchase.
Some, like Mutual Funds Direct, waive the front load entirely). Rear-loads
are usually fixed - the broker gets the full commission upfront, the fund
recovers it over time, often through higher Management fees.
Bottom line ? Read the fund prospectus, or insist on a detailed
explanation of redemption fees,management expense ratios, penalties,
switching fees, etc.
--
mdf...@io.org Mark Freedman (Toronto, Ontario, Canada)
William Rini
While I would like to thank you for the follow up to my post I found some
errors in your reply to the Personal Finance article you posted.
>
> Also be aware of incentive plans, e.g. free trips or other rewards
>for top salepeople, and incestuous reslationships, e.g. brokers who
>promote a particular fund without mentioning that the fund manager owns
>the brokerage.
the inhouse funds. If there is any doubt as to the conflict of interests
that I have mentioned in the past, one has to look no further than the
recent NASD rule change which makes it a violation to accept or offer
incentives for selling mutual funds, unless of course it's an inhouse
fund (which for the most part, can't even compete with outside products).
If it's an inhouse product the rules don't apply. Hmmmmm.....one might
even be curious enough to ask who sits on these NASD panels (look it up
you might be surprised at who claims to be looking out for your best
interests).
>
> This usually includes a "trailer" fee, i.e. ongoing service charge
>paid to the broker for ongoing support / advice. It usually seems to be
>0.5% - 1.0%.
is usually in the neighborhood of .25% or less. This is why the argument
used by some to defend no loads holds no water. Many have argued that
brokers are making big money off of trailer fees. A broker selling a
$10,000 investment in a mutual fund would earn a whopping $25 a year in
trailing commissions, of which at a 30% payout (standard at most full
service firms) means his take is $7.50 per year in annual trailer
commissions (this is before taxes).
> Not necessarily, for the reasons outlined above. Also, a front-load
>is negotiable (discount brokers may charge 1%-2% depending size of
>purchase. Some, like Mutual Funds Direct, waive the front load
>entirely). Rear-loads are usually fixed - the broker gets the full
>commission upfront, the fund recovers it over time, often through higher
>Management fees.
offer price reported to the NASD and the SEC, and it is illegal to offer
a continious offer for less than the POP (public offering price) then
brokers may not discount the load. They don't collect the load, the fund
company does and pays it out to the broker. The only discounts are
making breakpoints published in the prospectus.
libby.rbls.lib.il.us
On 14 Apr 1995, William Y Huang wrote:
> hmmmmmm.......
>
> I like back loaded fund. Reasoning: Good no-load funds, like Magellan
> or Ultra, quickly grows to multi-billion dollars and become virtually useless.
>
Magellen is not a no-load fund. It charges a 3% load (an annoying habit
of Fidelity on their most popular funds.
--David
"When the Sleeper wakes"
Castor Fu
Bill> In article <3moql3$e...@usenetw1.news.prodigy.com>,
Bill> BFA...@prodigy.com (Robert Gresham) says: [Snip]
>> I continue to be absolutely amazed at the number of folks here
>> and elsewhere who dwell on the commission issue. I suspect it
Bill> Commissions matter. You can pay Merrill Lynch prices, but
Bill> those prices will have a negative impact on your total
Bill> return.
Bill> Merrill Lynch will tell you that their "expertise" makes up
Bill> the difference. Anyone who wishes to believe that is free
Bill> to do so.
While I'm sceptical about the quality of advice one gets from brokers
in general, one thing full service brokers DO offer, is a more personal
relationship and a willingness to deal with less commonly used
instruments. I've used full service brokers to deal with things like
transferring money abroad, and when I received an inheritance
in "bearer bonds". They work great for things like that, and for
such services are relatively inexpensive.
Places like Fidelity or Schwab wouldn't even touch that sort of work.
On the other hand, I see no reason to pay 100% higher commissions most
of the time, so I keep accounts at both a discount and full service
brokerage.
--
-- My current net peeve -v Castor Fu, (cas...@drizzle.stanford.edu)
looser: 1. less tightly connected 2. less morally restrained . . .
loser: One suffering defeat, error, etc. ex ."Losers use looser incorrectly"
William Rini
>On the other hand, I see no reason to pay 100% higher commissions most
>of the time, so I keep accounts at both a discount and full service
>brokerage.
charging 100% more than Schwab or Fidelity. Neither of them is known as
being exceptionally cheap in the first place.
And I hope that you give your business accordingly. Too often is the
case when "investors" get a full service firm to jump through hoops
providing all sorts of free services and then they take the business to a
discounter.
William Rini
investing, please take a look at some of the posts in this newsgroup,
especially the one asking about how to invest in money market.
Mark Freedman
applies only to Canada.
In article <3mrceq$c...@data.interserv.net>,
William Rini <bil...@centcon.com> wrote:
>Mark -
>
>While I would like to thank you for the follow up to my post I found some
>errors in your reply to the Personal Finance article you posted.
>
>
>>
>> This usually includes a "trailer" fee, i.e. ongoing service charge
>>paid to the broker for ongoing support / advice. It usually seems to be
>>0.5% - 1.0%.
>
>The total expenses of the fund may be 1%, but the trailer to the broker
Many popular funds in Canada have MER's between 2% and 3% (some are
higher). I recall reading that trailers are 0.5% - 1%, but don't have the
source handy (and may be mistaken).
>
>> Not necessarily, for the reasons outlined above. Also, a front-load
>>is negotiable (discount brokers may charge 1%-2% depending size of
>Maybe you are talking about Canada, but since the funds have a bid and an
>offer price reported to the NASD and the SEC, and it is illegal to offer
In Canada, Dealers/ brokers charge between 0% and 9%. Full-service
brokers seem to like 4.5%, while my discount broker charges 1% for amounts
over $25,000 and 2.5% on smaller purchases.
I am not involved in the industry other than as a client. Any articles I
post are intended purely for information and, as always, I encourage people
to check the facts in their particular circumstance before acting.
Alex Tomlinson
Presumably we buy funds on the following basis:
- the manager has a good track record
- the fund objective, style and values matches our own
Suppose I rank all the funds according to the above criteria and the
top fund on the list is a loaded fund. Do the anti-loaders out there
say that I should ignore it and go the the first no-load in my
ranking?
This is the same point brought up by the attached post, but I saw no
response. What is the net's response to this?
Alex
-------------
: Well I bought the Seligman Communication and Information A Fund
: because it's the best sector fund out there. Show me another fund
: that has a history as good as it that is no load. I bought it after
: doing my own research, with which I drove my wife crazy with BTW, and
: did not need to ask my broker as whether or not it was a good fund.
:
: Jim
:
: --
: Jim Craft
: Disclaimer: "Maybe all I need besides my pills and the surgery
: is a new metaphor for reality" -- Dis con nec ted
: Queensryche, Promised Land (1994)
--
William Rini
>
>
>Presumably we buy funds on the following basis:
>
> - the manager has a good track record
> - the fund objective, style and values matches our own
>
>Suppose I rank all the funds according to the above criteria and the
>top fund on the list is a loaded fund. Do the anti-loaders out there
>say that I should ignore it and go the the first no-load in my
>ranking?
>
>This is the same point brought up by the attached post, but I saw no
>response. What is the net's response to this?
you call them own load funds. Actually I think many of them would be
more open to paying loads if the load didn't go to a broker. This is the
impression I get from most of the no-load arguments I heard, they focus
the entire debate on two points.
1. They assume they are picking the no-load fund that will be a top
performer in the future.
2. The broker shouldn't be making a commission because it makes him/her
biased.
But that leaves two gaping holes that the no-loaders can't or won't
address.
1. What if they buy a no-load small cap fund and a broker recommends a
loaded large cap fund, and the large caps stage some impressive
rallies? Hasn't the no loader underperformed the broker? Or what
if as was mentioned in the previous post, the loaded fund grossly
outperforms it's no load peers in that particular sector?
2. If the best performing no-load gives sub-par service (ie statements
phone reps, frequent mistakes), but has superior performance over
it's loaded competitor, which one do you buy? What level of service
would make paying a load worthwhile?
Alex Quilici
>al...@maple.ece.utexas.edu (Alex Tomlinson) wrote:
>>
>>Presumably we buy funds on the following basis:
>>
>> - the manager has a good track record
>> - the fund objective, style and values matches our own
>>
>>Suppose I rank all the funds according to the above criteria and the
>>top fund on the list is a loaded fund. Do the anti-loaders out there
>>say that I should ignore it and go the the first no-load in my
>>ranking?
Absolutely not. Most no-load advocates say that you should consider
*all* funds and if there is what appears to be an equivalent performing
no-load fund (or even a way to buy an equivalent load fund without paying
a load, as in a load-waived IRA), then that's the way to go. Only if
there is no equivalent no-load fund, should you buy a load.
In certain categories, like growth-and-income, all except for one
of the funds that have beaten the S&P 500 during the past 10 years
have been no-loads (see Jane Bryant Quinn's column in last week's
Newsweek). So why should anyone buy a loaded fund there?
In other categories, specifically sectors, no-loads are rare and
loaded funds may in fact be the best deal. The Seligman Communications
fund that gets mentioned here all the time has certainly been an
outstanding performer and if you want a high-risk technology fund,
with heavy emphasis on communications-related stocks, the load is
probably worth it. But that's because there is no no-load with
anything approaching its recent performance and because it has
a very interesting and appealing portfolio.
I look at it this way. If a broker presented me with all of the funds
(loaded and no-loaded) related to a particular category, would the
loaded fun stand out as the best deal? If it is not a clear winner,
a no-load is the way to go.
>This is the impression I get from most of the no-load arguments
>I heard, they focus the entire debate on two points.
>
>1. They assume they are picking the no-load fund that will be a top
> performer in the future.
No, what no-loaders are saying is: If you have two funds in the
same category, one loaded and one no-loaded, and they appear to be
relatively equivalent from past performance, and there is no good
argument for why one will outperform the other in the future,
then take the no-load.
>2. The broker shouldn't be making a commission because it makes him/her
> biased.
That's close. Because the broker doesn't make a commision in no-loads,
the broker is extremely unlikely to recommend them even when they
are clearly the right way to go, as in categories like growth and
income or bond or index funds. In addition, because the broker often
is allowed (or strongly encouraged) to sell only certain loaded funds,
the broker is likely to avoid recommending other, better loaded funds.
>But that leaves two gaping holes that the no-loaders can't or won't
>address.
>
>1. What if they buy a no-load small cap fund and a broker recommends a
> loaded large cap fund, and the large caps stage some impressive
> rallies? Hasn't the no loader underperformed the broker?
Yes, but they would have been even better off going to an unbiased
fee-based financial advisor who recommended a no-load large cap,
right? (Just as an aside: Do you know any brokerage houses that were
advising buying large caps at the beginning of this year, before
their recent rally started? I recall that CNBC was reporting many
recommending just the opposite.)
> Or what
> if as was mentioned in the previous post, the loaded fund grossly
> outperforms it's no load peers in that particular sector?
Have you heard any no-load advocate argue against taking the load fund
in this case?
I haven't, although I have heard people cautioned against chasing
risky sector funds, which are often loaded.
>2. If the best performing no-load gives sub-par service (ie statements
> phone reps, frequent mistakes), but has superior performance over
> it's loaded competitor, which one do you buy? What level of service
> would make paying a load worthwhile?
This is actually an interesting argument. Do you have some examples
in mind you are willing to share? I certainly have no complaints
about the levels of service I have received from Fidelity, T. Rowe
Price, the Montgomery funds, and other primarily no-loaders. Which
no-loads have horrible service? Which load funds have such excellent
service that you would advice clients to consider them on that basis?
And do these load funds have equivalent or lower expenses year in and
year out? Or is the charge for this better service paid for out of
higher management fees? We all know it's not paid for out of the
load...
I think you didn't present the one argument that carries some weight
with me. And that is that a load fund is likely to have fewer redemptions
in a big downturn and therefore somewhat less likely to have to turn
paper losses into real losses. But I'd like to see some concrete
evidence that this was the case in the 1987 and 1990 bear markets.
Unfortunately, for the load advocates, there is some evidence against
that argument. In the G&I category over the past 10 years almost
all of the winners were no-loads, which would indicate that they didn't
have to sell when they wanted to buy. Also, Peter Lynch complained
that Magellan, a loaded fund, had to face significant redemptions right
after the 1987 crash, right when he wanted most to buy.
--Alex
atul madahar
though OEMs and retail. Any thoughts on this one?
William Rini
>>
>>1. They assume they are picking the no-load fund that will be a top
>> performer in the future.
>
>No, what no-loaders are saying is: If you have two funds in the
>same category, one loaded and one no-loaded, and they appear to be
>relatively equivalent from past performance, and there is no good
>argument for why one will outperform the other in the future,
>then take the no-load.
year, etc? For every no load you own, from the time you owned it, has it
been outperformed by any loaded fund in the same sector?
>
>>2. The broker shouldn't be making a commission because it makes
him/her
>> biased.
>
>That's close. Because the broker doesn't make a commision in no-loads,
>the broker is extremely unlikely to recommend them even when they
>are clearly the right way to go, as in categories like growth and
>income or bond or index funds. In addition, because the broker often
>is allowed (or strongly encouraged) to sell only certain loaded funds,
>the broker is likely to avoid recommending other, better loaded funds.
the last month or two I'm surprised you still don't catch it. A DEAN
WITTER OR A MERRILL LYNCH (OR ANY FULL SERVICE FIRM) WON"T SIGN SELLING
AGREEMENTS WITH NO LOAD FUND COMPANIES. The broker is not being biased,
he/she is showing you the best product that he is allowed to sell you by
LAW. As in it's a SEC violation for him to try and sell you a product
his firm does not sell (it's called "selling away"). Yet there is an
insistance by those who claim not to be biased against brokers, to keep
blaming the broker for only showing load funds. Want to change it?
Complain to the NASD, the SEC or the firms.
>
>>But that leaves two gaping holes that the no-loaders can't or won't
>>address.
>>
>>1. What if they buy a no-load small cap fund and a broker recommends a
>> loaded large cap fund, and the large caps stage some impressive
>> rallies? Hasn't the no loader underperformed the broker?
>
>Yes, but they would have been even better off going to an unbiased
>fee-based financial advisor who recommended a no-load large cap,
>right? (Just as an aside: Do you know any brokerage houses that were
>advising buying large caps at the beginning of this year, before
>their recent rally started? I recall that CNBC was reporting many
>recommending just the opposite.)
avoid the issue. Should we pull out every Money Magazine, or Barrons
that called a trend wrong? Isn't that the place where the no loaders
suggest that people get their information, instead of paying a broker a
load for advice.
>
>> Or what
>> if as was mentioned in the previous post, the loaded fund grossly
>> outperforms it's no load peers in that particular sector?
>
>Have you heard any no-load advocate argue against taking the load fund
>in this case?
>
>I haven't, although I have heard people cautioned against chasing
>risky sector funds, which are often loaded.
there is almost no reason to buy a loaded fund when there is a no load
alternative. They fail to temper their absolute statement by saying what
is an acceptable alternative....but why should that stop them from giving
unqualified advice? Especially when they want to accuse brokers of not
giving all the facts.
>
>>2. If the best performing no-load gives sub-par service (ie statements
>> phone reps, frequent mistakes), but has superior performance over
>> it's loaded competitor, which one do you buy? What level of
service
>> would make paying a load worthwhile?
>
>This is actually an interesting argument. Do you have some examples
>in mind you are willing to share? I certainly have no complaints
>about the levels of service I have received from Fidelity, T. Rowe
>Price, the Montgomery funds, and other primarily no-loaders. Which
>no-loads have horrible service? Which load funds have such excellent
>service that you would advice clients to consider them on that basis?
instead of answer it you have turned it around into a matter of trying to
prove a qualitative matter. What I find as acceptable service may not be
acceptable to you, and vice versa. Providing examples would be a
pointless waste of bandwidth.
>
>And do these load funds have equivalent or lower expenses year in and
>year out? Or is the charge for this better service paid for out of
>higher management fees? We all know it's not paid for out of the
>load...
service?" It doesn't matter if the no load doesn't charge a dime for
service, if you expect a great deal of service and a no load fund that is
a top performer does not provide you with that level of service, at what
point is your piece of mind and your satisfation worth paying for
service?
>
>I think you didn't present the one argument that carries some weight
>with me.
them to your own advantage.
And that is that a load fund is likely to have fewer redemptions
I didn't bring up this point, and it is a sign you have run out of things
to say, since you didn't address the issues I presented. But I will
answer your question anyways.....try the Dalbar study for the year of
1987.
>
>--Alex
Alex Tomlinson
Rini: <== William Rini <bil...@centcon.com>
Rini:
Rini: I've repeated this probably 5-6 times in the last month or two
Rini: I'm surprised you still don't catch it. A DEAN WITTER OR A
Rini: MERRILL LYNCH (OR ANY FULL SERVICE FIRM) WON"T SIGN SELLING
Rini: AGREEMENTS WITH NO LOAD FUND COMPANIES.
Rini:
Rini: The broker is not being biased,
Rini:
Rini: he/she is showing you the best product that he is
Rini: allowed to sell you by LAW.
I think we have a terminology problem here with the word "bias".
Fom Webster's dictionary:
bias, n. -- a predisposed point of view
I claim that if the broker does not show the investor all the available
options, then it is a "bias" regardless of the reason behind it.
It may be that the broker is not allowed by law to sell this security,
or it may be that the broker will make less commission selling this
security. But either way -- it is a bias.
Alex Tomlinson
--
Dave Dodson
William Rini <bil...@centcon.com> wrote:
>2. If the best performing no-load gives sub-par service (ie statements
> phone reps, frequent mistakes), but has superior performance over
> it's loaded competitor, which one do you buy? What level of service
> would make paying a load worthwhile?
I have several Fidelity funds which have performed quite admirably over
the time I have owned them, although I can't say that they have the best
return for the risk they have taken.
In my opinion, Fidelity's service is excellent. I can reach a person who
knows a lot about their funds 24 hours a day, and they have even assigned
a personal representative to me that I can reach during normal business
hours (I guess they do that when you are a good customer :-). They won't
give me advice, but they will answer my questions whenever I have them,
or provide me with information whenever I need it.
They've made one or two mistakes in my account in the last 13 years. It
only took one phone call to resolve any problem.
I've driven to Fidelity's Dallas Investor's Center on an April 15 or two
to make my IRA contribution at the last minute, and always have been served
promptly and efficiently.
They even have a WWW server where you can get information and request
prospectuses.
I doubt that any mutual fund salesman provides better service.
----------------------------------------------------------------------
Dave Dodson dod...@convex.com
Convex Computer Corporation Richardson, Texas (214) 497-4234
William Rini
>
>I doubt that any mutual fund salesman provides better service.
are probably an equal number of people who feel that they have received
poor serivce from Fidelity. The question was qualitative, as in asking
how does the quality of service rank as an investment consideration.
Alex Quilici
>Alex Quilici <al...@wiliki.eng.hawaii.edu> writes:
>>
>>No, what no-loaders are saying is: If you have two funds in the
>>same category, one loaded and one no-loaded, and they appear to be
>>relatively equivalent from past performance, and there is no good
>>argument for why one will outperform the other in the future,
>>then take the no-load.
>
>Then what standards are you judging it by? Past year, past 5 year, 10
>year, etc? For every no load you own, from the time you owned it, has it
>been outperformed by any loaded fund in the same sector?
Pick whatever performance criteria you want. The point is this: if
by that criteria a no-load comes out on top, you might as well pick
the no-load. (And for lots of categories, like G&I, almost all the
winners are no-loads.) Why pay extra for the same or worse performance?
Besides, the no-load frees you to make quick trades if you realize you
made a mistake. You don't have that same freedom with a load.
And what's the point behind your other question? I can ask you the
same thing: "For every load fund you own, from the time you owned it,
has it been outperformed by any no-load fund in the same sector?"
So what?
>>>[One reason why no-loaders don't like load funds:]
>>>
>>>2. The broker shouldn't be making a commission because it makes
>>> him/her biased.
>
>A DEAN
>WITTER OR A MERRILL LYNCH (OR ANY FULL SERVICE FIRM) WON"T SIGN SELLING
>AGREEMENTS WITH NO LOAD FUND COMPANIES. The broker is not being biased,
>he/she is showing you the best product that he is allowed to sell you by
>LAW.
What's your point here? Is it that some brokers give bad advice not
because they are biased but instead because they are forced to by
law? Great....
What most no-load advocates are arguing is that brokers claim the
load is compensation for their giving clients advice. But why
should brokers be making commissions for giving advice when (1)
the law prevents them from giving good advice, or (2) that
advice is biased by the amount of commissions they make.
Brokers also claim that commissions are partially for carrying out
transactions. I don't begrudge them that, but if someone else is
willing to carry out the equivalent transaction for no fee, then
why bother paying the commission? When there is no such option
(as in the case of certain sectors where good load funds reside),
the broker can still make plenty of money.
>>>1. What if they buy a no-load small cap fund and a broker recommends a
>>> loaded large cap fund, and the large caps stage some impressive
>>> rallies? Hasn't the no loader underperformed the broker?
>>
>>Yes, but they would have been even better off going to an unbiased
>>fee-based financial advisor who recommended a no-load large cap,
>>right?
Why don't you separate out asset allocation from fund choice?
They are two different matters. Asset allocation has nothing to do
with loads. In your example, you deliberately mixed the two. In
your example, the no-loader didn't underperform because of picking
a no-load but because they didn't allocate assets correctly.
>> (Just as an aside: Do you know any brokerage houses that were
>>advising buying large caps at the beginning of this year, before
>>their recent rally started? I recall that CNBC was reporting many
>>recommending just the opposite.)
>
>And just as an aside answer....nice try at using an isolated example to
>avoid the issue. Should we pull out every Money Magazine, or Barrons
>that called a trend wrong? Isn't that the place where the no loaders
>suggest that people get their information, instead of paying a broker a
>load for advice.
Awwww, give me a break. You suggested the isolated example. I just
pointed out that (1) good advice doesn't have to come from a broker and
(2) most brokers were not giving the correct asset allocation advice
at the beginning of the year. So your isolated example is very
misleading.
And no-loaders often suggest going to fee-based financial planners to
get their information (if they aren't comfortable with doing their
own reading and research). At least that advice isn't tainted by the
conflicts of interest you yourself keep pointing out.
>>>2. If the best performing no-load gives sub-par service (ie statements
>>> phone reps, frequent mistakes), but has superior performance over
>>> it's loaded competitor, which one do you buy? What level of service
>>> would make paying a load worthwhile?
>>
>>This is actually an interesting argument. Do you have some examples
>>in mind you are willing to share? [...]
>>Which load funds have such excellent
>>service that you would advice clients to consider them on that basis?
>
>It's a question Alex, I thought you would recognize it as such. But
>instead of answer it you have turned it around into a matter of trying to
>prove a qualitative matter. What I find as acceptable service may not be
>acceptable to you, and vice versa. Providing examples would be a
>pointless waste of bandwidth.
No, it's not. I've asked you for specifics and given you a chance to
educate. I'm wondering if what these mysterious magical services that
I'm now missing out on are. Put up or shut up. What specific services
do these load funds provide that no-loads don't? And can you justify
these services being worth 5% or more of someone's initial investment?
--Alex
William Rini
>
>It may be that the broker is not allowed by law to sell this security,
>or it may be that the broker will make less commission selling this
>security. But either way -- it is a bias.
to the discussion, since if we use your definition then that makes a
Vangaurd phone rep "biased" for not telling you another fund family might
have a better better fund than Vanguard.
I was under the assumption that we were using "bias" to indicate whether
or not a broker is purposely not showing a customer no load funds because
he would not make a commission. And as I pointed out, it is not a matter
of why he/she doesn't show no loads, it's because they can't.
Alex Quilici
G Grecco
broker or financial planner not get compensated for his time.
And in hind sight, many annual fee's that the no-load's charge, add up to
be
more expensive in the long run, compared to buying a loaded fund.
Remember it's not whether the fund carries a load or not, it's how the
fund actually performs that the important choice.
Robert Gresham
>In my opinion, Fidelity's service is excellent....
most assuredly that you would get better service from most large
brokerage firms. This is not a dig at Fidelity, which I consider a fine
company, but a caveat: you get what you pay for regardless of what
advertising says. Regards
Paul Maffia
>And in hind sight, many annual fee's that the no-load's charge, add up to
>be
>more expensive in the long run, compared to buying a loaded fund.
This particular statement is basically false and misleading.
There are some individual no-load funds whose annual expenses are greater
than some individual loaded funds.
But on average, the expenses of no-loads is only statistically,
insignificantly greater than the average load fund. Roughly .01
percentage point more.
When one adds in the immediate cost or even the long run cost of the
load, then the average load fund is significantly greater than those of
the average no-load.
But averages are just that and can be inappropriately used and, therefore
misleading. So one can only validly compare specific load and no-load
funds.
Obviously, performance after all costs are accounted for is what counts.
Since future performance is impossible to predict, the only valid
statement that can be made about fund cost on performance in the future
is that all other things being equal, the fund with the lower total costs
will outperform the fund with the higher costs.
The expense ratio along with any load paid represents the basic nut that
must be covered before an investor can make a single penny in profits in
a fund. The manager only has to overcome the expense ratio. the investor
both.
And it is foolish to say that once the load is paid it can be ignored.
That load will affect the performance the investor enjoys for as long as
they own that fund. And the absolute dollar effect of that load,
increases each year that the fund is owned. That fact is easily
illustrated if you take a load and no-load fund whose managers deliver
exactly the same measured performance with the same measured expense
ratio. The only difference between the funds and the returns the investor
enjoys is the load paid.
Over time, the investor in the no-load fund, in this example, will have
an ever increasing amount of money in their pocket than the load fund
investor.
Even if one assumes a differential in expense ratios greatly in favor of
the load fund, if the measured performance of both funds is the same, the
no-load investor will continue to enjoy a better return. Although here,
the likelyhood of the two funds having the same measured performance over
time drops significantly in favor of the loaded fund.
Paul M.
Seth Jackson
: al...@maple.ece.utexas.edu (Alex Tomlinson) wrote:
: >
: >Presumably we buy funds on the following basis:
: >
: > - the manager has a good track record
: > - the fund objective, style and values matches our own
: >
: >Suppose I rank all the funds according to the above criteria and the
: >top fund on the list is a loaded fund. Do the anti-loaders out there
: >say that I should ignore it and go the the first no-load in my
: >ranking?
First of all, how big is the difference in performance, and how big is
the load? IMO, there would have to be a *very* large difference in the
way the load and no-loads have performend to persuade me to choose the
load. That's because (OK, class, repeat after me) past performance does
not guarantee future results. Unless there's some compelling reason to
believe the load fund will continue to significantly outperform the
no-load, I'll take the no-load. Load fund advocates sometimes argue that
you need to pay for performance. But in reality, if you buy a load fund
for this reason, you're actually paying for *last year's* performance.
: >This is the same point brought up by the attached post, but I saw no
: >response. What is the net's response to this?
: And you probably won't Alex, because even some of the "anti-loaders" as
: you call them own load funds. Actually I think many of them would be
: more open to paying loads if the load didn't go to a broker. This is the
: impression I get from most of the no-load arguments I heard, they focus
: the entire debate on two points.
: 1. They assume they are picking the no-load fund that will be a top
: performer in the future.
:
: 2. The broker shouldn't be making a commission because it makes him/her
: biased.
I'm sorry, but there may be *some* people saying this, but it's hardly
fair to present the above as a summary of the arguments for no-loads.
I'm not even sure I can make sense out of the first point. I'm hoping
that you simply failed to clearly express whatever point you were trying to
make, and were not being intellectually dishonest by attributing a silly
sounding argument to the no-load advocates that simply doesn't exist. The
only argument regarding performance that is necessary to defend no-load
investing is that there is not likely to be any significant difference in
the performance of load and no-load fund before figuring in the cost of
the load.
Regarding the second point, do you really believe this to be the argument
no-load investors are making? C'mon, be real. Who would actually make
such an argument? Pretend for a second that you were on a debate team and
you were assigned to prepare an argument again buying load funds. Is that
really the argument you would make, or could you possibly see a better
one? If a better argument exists (and it does), then why are you
attempting to portray the above as the main arguments for no-load
investing?
In fact, the real argument for no load investing is that when you buy a
load fund, you pay a load. Period. It is utterly irrelevent to me whether
the load goes to pay brokers or if it goes to pay fund company employee
salaries, or if it's used to buy a shiny new building in downtown
Chicago. Given the choice of paying money or not paying money, I think
most rational people would agree that it's better not to pay money. Thus,
the basic argument for no-load investing.
--
Seth Jackson
William Rini
>
>Pick whatever performance criteria you want. The point is this: if
>by that criteria a no-load comes out on top, you might as well pick
>the no-load. (And for lots of categories, like G&I, almost all the
>winners are no-loads.) Why pay extra for the same or worse performance?
>Besides, the no-load frees you to make quick trades if you realize you
>made a mistake. You don't have that same freedom with a load.
are advocating market timing, then switching in and out of funds for most
novice fund buyers actually could hinder performance.
>
>And what's the point behind your other question? I can ask you the
>same thing: "For every load fund you own, from the time you owned it,
>has it been outperformed by any no-load fund in the same sector?"
>So what?
following three funds. Janus Worldwide, Wells Fargo Corporate Stock Fund
(in my IRA) and PBHG Growth (actually I sold it last week to move the
money into some individual stocks, so I really own 2 mutual funds). The
Janus I bought because of the liberal policies regarding investing
additional funds. And the Wells Fargo, well...it was either that, a bond
fund, or a CD. I can't even tell you where the Janus Worldwide Fund
ranks versus other funds, and I don't much care. They are a good fund
company, and they have some customer support policies that were important
to me. That makes me happy, I could have poured over performance numbers
and come up with any fund, but this was what I was comfortable with.
I am not a big fan of mutual fund investing to begin with, when I was a
retail broker, mutual funds never accounted for more than a small
percentage of the assets I had under my management. I am not defending
load funds only the logic that dictates that having a closed mind is a
bigger enemy of successful investing than loads.
>
>What most no-load advocates are arguing is that brokers claim the
>load is compensation for their giving clients advice. But why
>should brokers be making commissions for giving advice when (1)
>the law prevents them from giving good advice, or (2) that
>advice is biased by the amount of commissions they make.
not the only thing they are recommending (other non-compensated advice is
also given all of the time...asset allocation, etc.), so this is a falacy
right off the bat. Second you speak out of one side of your mouth by
saying that it's OK to pay for advice, but then imply that people should
not pay commissions. So is paying a fee better than paying a commission?
If I am a fee based planner, and I charge 1% of investments under
management, and I recommend a no load fund, after 5 years you have still
paid 5% (actually, since one should expect positive returns over a 5 year
period I would have collected more than 5% as the assets grew each
year). Now if you bought a load fund you pay the 5% up front and
assuming the 12b1 and all other fees are roughly equal, after year 5 any
advice you receive from me is FREE (if compared to the fee based
advisor). You are still paying 1% a year for the fee based advisor every
year.
And as for your two points
(1) Then shouldn't you be saving your accusations for the brokerage firm
instead of trying to imply that the broker is doing something unethical?
(2) Almost every fund has the same commission (load) structure. Unless
we are talking proprietary funds (ahem...Dean Witter), then I get paid
the same for advising you to buy either load fund A or load fund B. How
is my recommendation biased if you know that I am only showing you loaded
funds?
>
>Brokers also claim that commissions are partially for carrying out
>transactions. I don't begrudge them that, but if someone else is
>willing to carry out the equivalent transaction for no fee, then
>why bother paying the commission? When there is no such option
>(as in the case of certain sectors where good load funds reside),
>the broker can still make plenty of money.
making these fees that you have just said you don't begrudge them for
making? How are they making money on no load funds Alex? Are you saying
I should tell a client "Mr. Jones I recommend you put X% into large caps,
x% into small caps, X% into bonds, and X% into foriegn equities. But
since there are some pretty good large cap, small cap, and bond, no load
funds. Go buy them elsewhere and then come back so I can sell you this
great international equity fund." If you are suggesting this, I would
like to invite you into the real world Alex. Ford will not recommend
that you buy a Chevy, Compaq will not advise you that you should buy any
of it's competitors, it's called life Alex.
>
>Why don't you separate out asset allocation from fund choice?
>They are two different matters. Asset allocation has nothing to do
>with loads. In your example, you deliberately mixed the two. In
>your example, the no-loader didn't underperform because of picking
>a no-load but because they didn't allocate assets correctly.
do with no loads. We are both assuming that based on some outside
information we can make a decision that will enhance future performance.
Just because a no load fund performed better over the last 5 or 10 years
has no relation to how it will do over the next 5 or 10. It may be an
indicator, but it gurantees nothing. So if you can make that assumption,
I can make the assumption that asset allocation can overcome deficiencies
in the individual funds. You can't take a liberty with your examples and
then force my argument into a corner and call it a fair comparison.
>
>Awwww, give me a break. You suggested the isolated example. I just
>pointed out that (1) good advice doesn't have to come from a broker and
>(2) most brokers were not giving the correct asset allocation advice
>at the beginning of the year. So your isolated example is very
>misleading.
your way to point out that brokerage firms called the large cap rally
wrong. You even challenged me with it. Now when your argument is forced
into the same spotlight, I should give you a break? For all the
complaining no loaders do about dishonest brokers, they sure don't like
having to live up to the same burden of evidence. Everytime you or any
of your cohorts has made a stupid comparison and I reverse it and ask you
to answer, I always get the same whining that I'm trying to pull a fast
one. I'm only asking you to keep from making unrelated refrences to
justify your position.....why do you think you started it with "As an
aside"? I know. Because it was a nice way to throw in a nice little
cheap shot without having to live up to the same standard.
>
>No, it's not. I've asked you for specifics and given you a chance to
>educate. I'm wondering if what these mysterious magical services that
>I'm now missing out on are. Put up or shut up. What specific services
>do these load funds provide that no-loads don't? And can you justify
>these services being worth 5% or more of someone's initial investment?
>
>--Alex
come to your office and answer questions about the fund for you? Maybe
the no loads you own allow you to meet with the portfolio managers to
describe their strategy. Do no loads offer to have the portfolio
manager of your fund give a seminar? Maybe your little $10,000
investment (this is for illustrative purposes, I have no idea what you
own) in some no load entitles you to an 800 number, but when I have 50 or
100 clients with several million dollars in a fund, you bet your ass,
when I call I get answers and my clients get better service if they have
any problems. Although as a percentage of the assets under management,
mutual funds accounted for only a small portion, but whenever I placed a
decent sized order ($25,000+), I got a call from the fund company, offers
of assistance, and all my clients who owned that family of funds
benefited.
--
Bill Rini <bil...@centcon.com>
The Syndicate: http://www.centcon.com/~billman/syn.html
William Rini
debate, the doublespeak from the no loader camp leaves no other
impression. For instance, look at Alex's last post. He claims he does
not believe this, but after accussing broker's of not showing their
clients good no load funds (and implying that broker's are biased because
they get paid on the load and not on the no load), he refuses to
acknowledege the fact that there are no selling agreements between the
firms and the funds, and thus would be illegal. But instead of
recognizing that the bias is built into the system, the same way Vanguard
is very unlikely to tell you Janus has a better performing fund than the
one you just called to buy, he goes on claiming the bias exists in the
broker.
spe...@news.cinenet.net (Seth Jackson) wrote:
>
>Regarding the second point, do you really believe this to be the
argument
>no-load investors are making? C'mon, be real. Who would actually make
>such an argument? Pretend for a second that you were on a debate team
and
>you were assigned to prepare an argument again buying load funds. Is
that
>really the argument you would make, or could you possibly see a better
>one? If a better argument exists (and it does), then why are you
>attempting to portray the above as the main arguments for no-load
>investing?
Seth Jackson
: Sorry Seth, but this is the unspoken argument. Whenever we have this
: impression. For instance, look at Alex's last post. He claims he does
I don't care what Alex's post says. You and I both know that if the
argument were based on the fact that the money went to a broker rather
than a fund company executive, it wouldn't be a point worth arguing. We
both know that that there is a rational reason for no-load investing, and
that is to avoid paying a load.
--
Seth Jackson
Fred Warshaw
deliberate) and twisting of words on this topic than any other topic I've
ever read except, maybe, political discourse. The case is very basic and
very simple. If you invest $10,000 in a no-load fund, you invest $10,000.
If you invest $10,000 in a 5% load fund (there are those with lower and
higher loads), you start off by investing $9,500. For a load fund to
overcome that difference from the very beginning of the investment record,
the load fund will have to provide a significantly better return over
its lifetime. Since, as has been proven by many studies over many
different time periods, the returns from load funds, assuming equal
annual costs, on the average, are equivalent to the returns from no-load
funds, the initial advantage of no-loads can not be overcome. The
biggest difference in return for mutual funds has proven to be somewhat
dependent on total annual costs or fees. This becomes more and more
important with the length of time the fund is held. Therefore, if you
want to give yourself the best chance of finishing with a better total
return at the end of any decently long investment period, choose a fund
that initially starts you off with the largest amount of your money
actually invested (no-load fund) and the smallest annual fees (check
these out in Morningstar, AAII publications, Mutual Fund Forecaster and
other newsletters or publications). One of the no-load fund families
with consistently low total annual fees is the Vanguard group.
-
guiFRED from PA
TDT...@prodigy.com
fwar...@ptn.com
mar...@hopper.unh.edu
>
> ....
> So is paying a fee better than paying a commission?
> If I am a fee based planner, and I charge 1% of investments under
> management, and I recommend a no load fund, after 5 years you have still
> paid 5% (actually, since one should expect positive returns over a 5 year
> period I would have collected more than 5% as the assets grew each
> year). Now if you bought a load fund you pay the 5% up front and
> assuming the 12b1 and all other fees are roughly equal, after year 5 any
> advice you receive from me is FREE (if compared to the fee based
> advisor). You are still paying 1% a year for the fee based advisor every
> year.
>
I've been stumped for a few months trying to decide which way to go on
this issue of load vs. no-load. I'm not comfortable investing on my
own and have spoken to two financial planners with different views -
a) charges 1% of investments under management - deals with Charles
Schwab
b) charges 5.75% front-end load under Waddell and Reed
It seems obvious that after 5-6 years(I'd be in it for about 30 years)
I'd be at a break-even point but realize it may not be that simple. I
know that the 12b1 and other fees need to be considered as well.
I would appreciate any input.
William F. Hummel
: I've been stumped for a few months trying to decide which way to go on
: own and have spoken to two financial planners with different views -
: a) charges 1% of investments under management - deals with Charles
: Schwab
: b) charges 5.75% front-end load under Waddell and Reed
: It seems obvious that after 5-6 years(I'd be in it for about 30 years)
: I'd be at a break-even point but realize it may not be that simple. I
: know that the 12b1 and other fees need to be considered as well.
: I would appreciate any input.
-------------------------------------
Hang on to your money and do a little reading first. Start with "Bogle
on Mutual Funds". Even if you go with so-called professional advice, you
need to understand what is being done for you. There are plenty of
incompetents (and even crooks) who are looking for your kind of account.
Spend a few weeks, or even months, if necessary to learn more and gain
confidence. My guess is that you will be ahead if you end up managing
your own money. Another useful reference would be "The Vanguard
Retirement Investing Guide" available from The Vanguard Group.
William F. Hummel
Mitchell L. Sutter
>: I've been stumped for a few months trying to decide which way to go on
>: this issue of load vs. no-load. I'm not comfortable investing on my
>: own and have spoken to two financial planners with different views -
>
>: a) charges 1% of investments under management - deals with Charles
>: Schwab
If you go with this option do not give him or her full power of attorney.
You can set up accounts with Scwabb where the advisor can get all
information on the account and trade within tha account, but cannot take
money out. This will prevent him from taking off with your money.
Also, obviously make sure the person has credentials and check them
out. The same applies for the broker you mention in plan B.
Mitch
Paul Wilson
|> mar...@hopper.unh.edu wrote:
|> : I've been stumped for a few months trying to decide which way to go on
|> : this issue of load vs. no-load. I'm not comfortable investing on my
|> : own and have spoken to two financial planners with different views -
|>
|> : a) charges 1% of investments under management - deals with Charles
|> : Schwab
|>
|>
|> : It seems obvious that after 5-6 years(I'd be in it for about 30 years)
|> : I'd be at a break-even point but realize it may not be that simple. I
|> : know that the 12b1 and other fees need to be considered as well.
|> : I would appreciate any input.
If you are going to be "in it for about 30 years" are you talking an investment youd like to have access to
during those 30 years (e.g. to buy a house), a retirement plan (of your own making) or an IRA?
In the last case, most mutual fund companies charge a LOT less than 5.75% for IRA contributions, and to
maintain a balance. Most phase this out altogether if the balance is over $10K.
In the next 30 years you should be making a lot of contributions. Early on the 5.75% front end load will seem
onerous, but once your balance is over 5.75 times your annual contribution, the 1% load on balance will be
more money. IF you are not planning on touching this money for the next 30 years, the front end load is
better, because each contribution will be "paid for" by comparison after less than 6 years.
Front end loads are bad, however, if you want your money out in the next couple of years.
Is this all of you money, or the retirement portion? If the latter, you may be able to button it up for 30
years. If the former, you will probably need to take some of it out every now and then for unforseen expenses.
I would agree with the earlier posters: read up on this a bit. Even if you then decide to let a pro handle
your money, you'll know what he is doing. You may not be able to catch him in time if he's a crook, but even
an honest pro can be very confusing, making seemingly bad investments if you don't understand the reasons for
his choices and the risks he is taking.
You can deal directly with Charles Schwab, or Fidelity, or any other. But if you'd rather not follow your
investments regularly (not even "medium term" like an annual review of funds in a portfolio which is not
changing much, hire someone you TRUST. Check him out, but be comfortable with him before you give him a lot
of money. Better yet, find 2-3 people you trust. The TV "Most Wanted" type shows are full of crooks who wipe
out retirees. Often the victim should have had more sense ("if it looks too good to be true..."), but
sometimes these guys look great for a while, then disappear. If you are dealing directly with large national
mutual fund firms, there is a lot less chance of being taken to the cleaners. They may bleed you a little for
fees, but they won't usually walk away with the bulk of your miney.
I'm getting a bit paranoid here. Just read up on the mutual funds (e.g. Boggle on Mutual Funds) enough to
decide, and pick someone you trust. The trust is worth more than the difference in fees.
Paul
William Rini
obtain the help of a financial planner or a broker, it avoids the
question I raised and the poster asked. I noticed that when I brought up
this point (a 1% annual fee over 30 years would cost more than 5% up
front) that Alex and most of the no loaders vanished. I bring up Alex
because he advocated using fee based financial planners because they
would not be biased in recommending load funds (if the person felt the
need to seek advice in the first place). But why can't I even get a no
loader follow up? I presume it's because they can't dispute the fact
that a fee based advisor will cost more than a commissioned broker
(assuming both are honest and both present the best product that they
have available).
Any comments no loaders????????
wfhu...@netcom.com (William F. Hummel) wrote:
>>I'm not comfortable investing on my own and have spoken to two
>>financial planners with different views -
>on Mutual Funds". Even if you go with so-called professional advice,
you
>need to understand what is being done for you. There are plenty of
>incompetents (and even crooks) who are looking for your kind of account.
>Spend a few weeks, or even months, if necessary to learn more and gain
>confidence. My guess is that you will be ahead if you end up managing
>your own money. Another useful reference would be "The Vanguard
>Retirement Investing Guide" available from The Vanguard Group.
>
>William F. Hummel
Paul Maffia
William Rini <bil...@centcon.com> writes:
>While I think that this is good advice whether or not someone decides to
>obtain the help of a financial planner or a broker, it avoids the
>question I raised and the poster asked. I noticed that when I brought up
>this point (a 1% annual fee over 30 years would cost more than 5% up
>front) that Alex and most of the no loaders vanished. I bring up Alex
>because he advocated using fee based financial planners because they
>would not be biased in recommending load funds (if the person felt the
>need to seek advice in the first place). But why can't I even get a no
>loader follow up? I presume it's because they can't dispute the fact
>that a fee based advisor will cost more than a commissioned broker
>(assuming both are honest and both present the best product that they
>have available).
>
>Any comments no loaders????????
>
You are right for a change.
If someone goes to an advisor who charges and fee each year based on the
value of the funds invested or net worth, then that advisor may well cost
the investor far more than an honest broker would.
On the other hand, there are financial advisors who charge solely for the
work done on either a flat fee or hourly basis. Assuming competance and
honesty, an advisor compensated in that manner will cost far less than
any broker known to man. And would probably end up doing a far better job.
The catch in trying to find a broker, fee based advisor, etc. is trying
to finmd one both competant and honest.
Paul M.
Mark Freeland
>While I think that this is good advice whether or not someone decides to
>obtain the help of a financial planner or a broker, it avoids the
>question I raised and the poster asked. I noticed that when I brought up
>this point (a 1% annual fee over 30 years would cost more than 5% up
>front) that Alex and most of the no loaders vanished. I bring up Alex
>because he advocated using fee based financial planners because they
>would not be biased in recommending load funds (if the person felt the
>need to seek advice in the first place). But why can't I even get a no
>loader follow up? I presume it's because they can't dispute the fact
>that a fee based advisor will cost more than a commissioned broker
But there are at least two different issues here:
1. How good is the advice you are buying (and does biased => bad), and
2. Over what period of time are you buying advice - ongoing, or
at selected times?
On the presumption that unbiased advice is better than biased advice,
the former question has been answered in many, many postings.
The latter question is implied by Mr. Rini, but he rephrased the
issue to advance his opinion. Let's take a look at it more objectively.
Say I have a pile of cash that I want to invest. I can do my own
research, select funds (presumably no load, since one can readily identify
good no load funds), and invest the money myself. I can go to a broker,
who may charge me several percent to invest the cash (even if he purchases
the same no load funds), but that saves me the research time, and has
value, *if* the advice is sound. I can go to a fee-based planner, who
will charge me for time spent in understanding my needs, looking at
the available options, and make recommendations (which I am free to act
upon myself, or not). Finally, I can put my money into a wrap account,
with its 1%, give or take, annual fee for ongoing advice.
That's the initial investment. Clearly, doing one's own research is
cheapest in dollars, and potentially most expensive in time. (Though one
also spends time to research the advisor if one elects to pay for advice.)
Depending upon one's level of self confidence, paying for someone else's
advice may be the cheapest in terms of peace of mind. (But this depends
upon one's confidence level in the advice.)
What happens down the road, when the market changes, or one's situation
changes (new expenses, greater income, etc.)? If one is doing one's
own portfolio management, one expends the extra time to analyze the
current situation, and alter investments appropriately. If one
is paying a broker to make investments, one goes back to the broker,
pays *another* commission (which Mr. Rini forgot to mention), and
moves some investments around. If one is paying a fee-based planner,
one goes back to the planner, pays for more time spent, and gets some
more advice (which again, one may apply or ignore). And if the investments
are in a wrap account, all this should happen magically (the account
manager should recognize the market changes, rather than the investor
having to notice changes). For the *ongoing* fee, one gets, in theory,
the additional service of not having to watch the investments.
Let's review:
a) Investing on one's own (no-load): investor-initiated, investor-researched,
no dollar cost.
b) Broker selected funds: investor-initiated, broker-researched, commission
fee (each time investments are made or switched),
typically percentage.
c) Fee-based planner: investor-initiated, planner-researched, service fee
(each time advice is sought, regardless of investment
made), typically time-based.
d) Wrap accounts: manager-initiated, manager-researched, ongoing fee
(in theory, covering the constant monitoring of the
portfolio)
The difference between (b) and (c) is largely the quality of the research.
>(assuming both are honest and both present the best product
> that they have available).
But the planner could have the whole universe of investments to compare
(including no load funds), since the planner is selling advice, not
investments.
The difference between (b - broker) and (d - wrap) is the nature of the
relationship. (b) is intermittent, while (d) is ongoing. If a broker does
make recommendations without being asked, the relationship begins to look
more like (d). But then the broker does also get new commissions when
the client acts upon the recommendations. Thus, the broker could
end up with more than 1%/year. (Typically, a broker/firm gets 5.0%
of a 5.75% load fee, so if one switches investments even once every
five years, the broker gets as much as the wrap account manager.)
In addition, the wrap manager has no motivation to churn the account.
Summary:
Choice (a) (do it yourself, no load) is clearly cheapest. If you must
have advice, you will pay. If you seek one-time advice (buy and hold
until death), a broker or a planner charging by time is cheaper than
a wrap account that charges for ongoing maintenance. In the real world,
investments change. If this is infrequent, you may still be better off
with Mr. Rini's 5% load (if you hold for > 5 years). But if you
expect to change investments with any regularity, a 1% ongoing fee
is cheaper.
>
>Any comments no loaders????????
>
>
Do you need more???
Mark Freeland
Alex Quilici
>I noticed that when I brought up
>this point (a 1% annual fee over 30 years would cost more than 5% up
>front) that Alex and most of the no loaders vanished. I bring up Alex
>because he advocated using fee based financial planners because they
>would not be biased in recommending load funds (if the person felt the
>need to seek advice in the first place). But why can't I even get a no
>loader follow up? I presume it's because they can't dispute the fact
>that a fee based advisor will cost more than a commissioned broker
>have available).
>
>Any comments no loaders????????
Actually, I haven't followed up on your article because it hasn't
made across the Pacific to our news server yet. I only saw the above
comments in a followup by Paul Maffia that did make it here. IF you
e-mail me the article, I'll be glad to respond.
But I can easily dispute your claim that a fee-based advisor will
cost more than a commissioned broker.
Of course, you are absolutely right that a 1% annual fee is not a
good deal. And this is a great argument against the wrap accounts
that many brokerages are pushing these days. In fact, some, like
Merrill Lynch, even charge their usual load on funds purchased in
wrap accounts (Smart Money, May 1995, page 34), so you get to pay
through the nose for their advice.
However, as Paul Maffia points out below:
>On the other hand, there are financial advisors who charge solely for the
>work done on either a flat fee or hourly basis. Assuming competance and
>honesty, an advisor compensated in that manner will cost far less than
>any broker known to man. And would probably end up doing a far better job.
Exactly. There are multiple ways to pay for financial advice. A
perfectly reasonable one is a flat fee to pay for advice on an initial
portfolio (where the advisor finds out your investment horizon, current
assets, goals, and so on) and then a subseqent small annual fee for
rejiggering the portfolio once a year.
To get an idea of exactly what these charges might be, I called up
several financial planners. The average charge was $200.00 for an
initial 4 hour consultation and financial recommendations (including
not just mutual funds, but also things like insurance, restructuring
debt, and so on) and then $100.00/year for updated advice, portfolio
restructuring, and so on.
Assuming a $10,000 pool of money, that's a 2% initial start up cost,
followed by 1%/year after that. Which seems high--until you remember
several things. One is that your pool of money is growing and you are
putting in new money without paying any additional loads. If you
are putting in another $5,000/year into 5% load funds, you are paying
$250.00/year just in investing the new money alone--more than double
the cost of the annual advice you are getting on your entire investment
pool.
Another is that you have the freedom to change funds and fund families
without paying any additional charges. So if conditions change, you
don't simply lose that load. If you are switching funds or families
every 5 years, the load alone is equivalent to at least a 1%/year.
Still another is that if you are putting in $5K a year in this
scenario and your investment is growing over time, you are likely
to have $100K at the end of ten years, and that $100 charge goes
to .1%.
At least with this scenario, an investor clearly pays less going to
a financial planner.
And finally, the fee-based advisor has the whole universe of funds to
choose from, not just a subset, and can give you advice about other
financial tools (e.g., Treasury Direct) that a broker may not want to
mention (or may be prevented from telling you about).
For those of you who are financial planners out there, what do you
charge for advice? Is my sample typical? High? Low? What
causes your charges to vary? Anyone willing to provide a spreadsheet
comparing their costs to a client over a 20 year period compare to
a broker?
--Alex
William Rini
>
>1. How good is the advice you are buying (and does biased => bad), and
>2. Over what period of time are you buying advice - ongoing, or
> at selected times?
>The latter question is implied by Mr. Rini, but he rephrased the
>issue to advance his opinion.
didn't rephrase anything. All I have done is bring the "Fee based
advisors are better than commisioned brokers" argument down to the points
it should address without all of this speculation about who would pick
the fund that would outperform the other.
>Let's take a look at it more objectively.
it objectively, but let's try anyways
>Say I have a pile of cash that I want to invest.
>If one is paying a broker to make investments, one goes back to the
>broker, pays *another* commission (which Mr. Rini forgot to mention),
>and moves some investments around.
for Mark?
Well Bill we have two concilation prizes, a years supply of Rice O Roni
and the correct answer.
If you stay within the family of funds, there is no additional fees.
Also, many of the larger funds will allow you to transfer in funds and
invest at NAV, if you can prove the money is coming from another fund in
which you paid a load equal to or more than the load usually charged by
that fund.
And since we are assuming that the broker is ethical and acting in your
best interests (we already defined that, so the only way out for you now
is to change that parameter, as I am sure you will attempt to do in your
follow up. If you have one) the rest of your post is simply a waste of
bandwidth. Case closed.
Michael Delooze
>I noticed that when I brought up
>this point (a 1% annual fee over 30 years would cost more than 5% up
>front)
I missed some of the original discussion but I have a question about
this point. Wouldn't the difference in fees paid in this case depend
on the amount of new investments made (either new money or changing
from one investment to another)?
-Mike
Mark Freeland
>m...@netcom.com (Mark Freeland) wrote:
>
>>
>>1. How good is the advice you are buying (and does biased => bad), and
>>2. Over what period of time are you buying advice - ongoing, or
>> at selected times?
> .
>>
>>The latter question is implied by Mr. Rini, but he rephrased the
>>issue to advance his opinion.
>
>Well Mark, could you please tell me how it was originally phrased? I
>didn't rephrase anything.
Ah, you've got me there! Since question (2) is only implied by your writing,
you didn't REphrase it in a suggestive manner, you PHRASED it as such.
> All I have done is bring the "Fee based
>advisors are better than commisioned brokers" argument down to the points
>it should address without all of this speculation about who would pick
>the fund that would outperform the other.
And in doing so, both highlighted the difference in fee structures, while
omitting differences in services. Thus, you created an apples and oranges
comparison. I would consider that a less than objective PHRASING of the
issue.
>>Let's take a look at it more objectively.
>
>Seeing as how you don't even understand the issue I doubt you can look at
>it objectively, but let's try anyways
I looked at all parts of the equation - services as well as costs
(we both agreed to ignore issue 1 - quality of service). Could you
explain how my consideration of costs (your highlighted criterion) and
what you are buying for that cost is less objective that considering
the cost without considering what that cost is buying?
But you are right about one point - I should have listed three issues,
not two, the third being the cost. I did discuss the cost in the posting
itself, but did not lay it out explicitly as part of the equation.
Sloppy writing on my part.
>>Say I have a pile of cash that I want to invest.
>
><blah, blah, blah deleted>
One of the first things one is taught in how to advocate a position (after
how to phrase it advantageously) is never to ignore contrary facts or
lines of reasoning. You can explicitly minimize them, dispute them,
dismiss them as irrelevant. But ignoring them simply gives them credibility,
and suggests that you do not disagree with them. Thank you.
>>If one is paying a broker to make investments, one goes back to the
>>broker, pays *another* commission (which Mr. Rini forgot to mention),
>>and moves some investments around.
>
>I'm sorry Mark, Wrong answer. [lackluster attempt at humor omitted]
>If you stay within the family of funds, there is no additional fees.
So this means that if I sell one fund and purchase another through
a broker, there is no commission, so long as it is in the same family?
(Last time I checked, commissions were fees; even if not, that's the
way you used the term, since I explicitly said commissions, above.)
Fascinating. Especially since I just called Schwab, and at least there,
they confirmed that they will still charge a commission (for funds outside
of OneSource, of course) for such an exchange. Maybe Schwab is just
a high priced brokerage firm (certainly people using deep discount brokers
think so). Could you recommend a firm that will execute commissionless
exchanges within load fund families? I'll be glad to call them up, too.
(Please don't suggest Fidelity Brokerage, which will not charge a commission
to switch among loaded Fidelity funds, according to previous posters.)
(For the interested spectator: While Schwab charges commissions for
funds outside of OneSource, it does not seem to charge any load above
what the fund would charge. So, if the fund would waive the load,
as many do when exchanging within the family, Schwab will not charge
the load either. But the commission remains. Source - phone conversation
with Schwab April 27. To further clarify, on the initial purchase,
when one pays a load, the commission may be paid out of that load;
this is from memory, not my conversation with Schwab.)
>Also, many of the larger funds will allow you to transfer in funds and
>invest at NAV, if you can prove the money is coming from another fund in
>which you paid a load equal to or more than the load usually charged by
>that fund.
>
If you say so. I've never read such a waiver in a load fund prospectus,
but I've only looked at about a half dozen such load fund families.
Right now, I'm looking at Colonial Newport Tiger; its prospectus does
appear to permit such an arrangement (I don't have the Statement of
Additional Information to verify all terms), but the prospectus does
insist that the broker charge some fee to permit investment at NAV.
If you would care to suggest a couple of fund families that make
such allowances, I'd be delighted to check out their prospectuses.
And if you believe that Colonial is such a family, I'll request a
Statement of Additional Information from them to verify this.
>And since we are assuming that the broker is ethical and acting in your
>best interests (we already defined that, so the only way out for you now
>is to change that parameter, as I am sure you will attempt to do in your
>follow up. If you have one) the rest of your post is simply a waste of
>bandwidth. Case closed.
You mean that statements like the one below were a waste of bandwidth?
>> [under some conditions] you may still be better off with Mr. Rini's
>> 5% load (from my previous post)
Maybe you are right; it may be futile to suggest that paying brokers for
advice is ever worthwhile. So much for trying to look at the other
side of an issue.
Or do you mean that attempting to present in a simple, tabular form
different ways of purchasing funds had no value? Is this because you
disagreed with part of it (suggesting that brokers collect commissions
on each trade - as discussed above)? Or because it introduced wrap
account managers as distinct from fee-based planners (a distinction
echoed by other posters who pointed out that many planners charge by time)?
You said at the beginning of your post (quoted above) that there are
multiple points to consider. All I read was a simplistic cost comparison.
What are these other points? Try summarizing them in a simple
side-by-side format, as I did. You may find that this does have value.
Basically, though, you have yet to respond to my suggestion that the
services provided by a broker for the initial commission are different
in kind from those provided by someone charging an ongoing fee; thus,
a straight cost comparison is not meaningful. If this exchange really
were a "case" to be "closed", I'd say that you lost summary judgment
on the pleadings. You might, however, consider amending your pleadings
to respond to issues properly before this forum.
Mark Freeland
m...@netcom.com
Lol Grant
In article <wfhummelD...@netcom.com>,
William F. Hummel <wfhu...@netcom.com> wrote:
>Hang on to your money and do a little reading first. Start with "Bogle
>on Mutual Funds". Even if you go with so-called professional advice, you
>need to understand what is being done for you. There are plenty of
>incompetents (and even crooks) who are looking for your kind of account.
>Spend a few weeks, or even months, if necessary to learn more and gain
>confidence. My guess is that you will be ahead if you end up managing
>your own money. Another useful reference would be "The Vanguard
>Retirement Investing Guide" available from The Vanguard Group.
I agree with the sentiment, but I find Bogle is a tough read,
especially for a beginner. Jonathan Clements "Funding your future"
was better, but the prize goes to "Mutual Funds for Dummies" by Eric
Tyson (isbn 1-568884-226-0) which I found to be truly excellent. I
highly recommend it.
Cheers,
__
Lol
DOMAIN: l...@cisco.com
UUCP: {uunet,sun}!cisco.com!lol
AT&T: (408)-526-8171
MAIL: Lol Grant, Cisco Systems, 170 W. Tasman Drive, San Jose, CA 95134
FAX : (408)-526-4952
Fred Warshaw
salesman/broker a commission and buys you nothing that you can't get
without a load. Simple isn't it.
William Rini
advisor. You and many of the other no loaders don't want to grant any of
these types of "What if's" and other hypothetical future events to
brokers or load funds, but when your numbers don't support your argument,
you pull out these groundless numbers as support. Adding $5K a year?
Common Alex, if I would have tried that one you would have been all over
me for trying to manipulate the numbers, but I guess it's OK because you
aren't making a commission.
al...@wiliki.eng.hawaii.edu (Alex Quilici) wrote:
>
>Assuming a $10,000 pool of money, that's a 2% initial start up cost,
>
>Another is that you have the freedom <deleted>
>
>Still another is that if you are putting in $5K a year in this <deleted>
William Rini
it better to pay 1% a year or 5% upfront, assuming that both are giving
value (advice) for their compensation. Thank you for adding absolutely
nothing to the discussion
Robert Gresham
>To get an idea of exactly what these charges might be, I called up
>several financial planners. The average charge was $200.00 for an
>initial 4 hour consultation and financial recommendations (including
>not just mutual funds, but also things like insurance, restructuring
>debt, and so on) and then $100.00/year for updated advice, portfolio
>restructuring, and so on.
Let me know when you find a competent professional who can run an office
on $50/hour in revenues. That's even assuming he books ALL his time. Do
you really think this guy is going to have ANY investment savvy? LOLOL
>Of course, you are absolutely right that a 1% annual fee is not a
>good deal.
Hmm.. It would seem that most folks would gladly give up 1%/year strictly
as a matter of opportunity cost
>And finally, the fee-based advisor has the whole universe of funds to
>choose from, not just a subset, and can give you advice about other
>financial tools (e.g., Treasury Direct) that a broker may not want to
>mention (or may be prevented from telling you about).
How much real investment skill does it take to dial the local Fed? I am
sure most financial planners are full of pithy investment sound bites
that sound informed. Financial planning has just as much of a tendency to
be a racket as brokerage, maybe even more so... See Charles Givens,
"Wealth Without Risk" LOLOL. For being computer literate, there are sure
alot of gullible folks out here in cyberville. Friedman said it best,
"There's no such thing as a free lunch." YOU GET WHAT YOU PAY FOR.
Alex Quilici
>I think you do a little too much assuming in favor of the fee based
>advisor. You and many of the other no loaders don't want to grant any of
>these types of "What if's" and other hypothetical future events to
>brokers or load funds, but when your numbers don't support your argument,
>you pull out these groundless numbers as support. Adding $5K a year?
>Common Alex, if I would have tried that one you would have been all over
>me for trying to manipulate the numbers, but I guess it's OK because you
>aren't making a commission.
As usual, Bill, when your argument has nothing to stand on, you start
up with bogus complaints about how unfair no-load advocates are.
And this despite my assuming both the broker and fee-based advisor's
advice resulted in the same investment performance--how much fairer
could I get?
My numbers (a $10K initial investment and $5K/year after that) are
perfectly reasonable for someone in their early 30's who is rolling
over a 401K into a self-directed IRA and then going into business for
themselves, where they make $50K/year or so and put 10-13% or so of
their income into a SEP-IRA. For someone who is older and nearing
retirement age, it's even more likely that they'll be putting in the
$5K or more per year and have more than $10K to invest.
But let's try to determine when a fee-based advisor is better and
when a broker is better.
It's clear that the more money investors have at the start, the more
they are hurt by the load and the more they should avoid brokers.
We can even calculate the breakeven point. Suppose we assume the
fee-based advisor charges $200 for an initial consultation and
the broker is recommending 5% front-end load funds. Then the
no-loader is clearly ahead for that first year if they are investing
more than $4,000. If they are investing less than that, you could
argue that for the first year they come out ahead by buying load
funds. But the odds are that if all you have is $4,000 or less to
invest, the fee-based advisor is not going to take the full 4 hours
at $50/hour and you can probably get by paying no more than $100--so
the breakeven point is somewhere between $2K and $4K.
So guess what? I'm willing to concede that someone who is
(1) making a one-time investment of $2K or less, (2) unwilling to do
any reading for themselves on where to invest, and (3) not having
to pay off any debt, could do just as well or better GOING TO AN
HONEST AND COMPETENT BROKER than a fee-based advisor. (I mention
debt because if they have debt, would a broker tell them to pay
the debt off first before investing? Probably not, right? But a
fee-based advisor certainly would.)
But anyone with more than $4K is better off going for the fee-based
advisor for the first year.
Now, let's consider the effect of fees in subsequent years.
If they never invest another penny, but keep going to the fee-based
advisor once a year, they'll have to pay that $100/year extra that
they wouldn't have to pay the broker. But with 5% load funds, if all
they do is invest $2K/year (which is the standard max IRA annual
contribution), they're going to be even with the broker or the
fee-based planner.
So guess what? I'm willing to concede that someone who is
investing $2K/year or less could do just as well by going to the
same HONEST and COMPETENT BROKER. But anyone investing more than
$2K/year should be going to a fee-based financial planner.
So here we have a reasonable rule of investing:
IF
you have less than $4K to initially invest AND
you are going to invest $2K/year or less in subsequent years AND
you don't want to do any reading about investments AND
you have no debt AND
you have an honest and competent broker whose load funds will
perform the same as similar no-load funds
THEN
you can do just as well (or better) with a broker than with a
fee-based financial planner.
So, Bill, do you have any complaints with this rule? It's a very
interesting rule to me, since it basically says the less money you
have to invest, the more likely it is you are getting your money's
worth from your broker advice!
But this rule also implies that the more you have when you start
investing and the more you are investing each year, the worse off
you are with a broker rather than a fee-based financial planner.
--Alex
Fred Warshaw
>it better to pay 1% a year or 5% upfront, assuming that both are giving
>value (advice) for their compensation. Thank you for adding absolutely
>nothing to the discussion
>
>--
>Bill Rini <bil...@centcon.com>
Bill, the topic here is Load vs No Load Mutul Funds. Not Advisors vs
brokers. What I said above was in response to clarify what each does.
As I said in my private reply, their businesses are, selling advice for
the advisor and selling products that provide a commission for the
salesman/broker. That is fact, not opinion. Your assumption that the
advice is of equal value is of course false since the salesman brokers
business is to sell you his products which produce an immediate loss to
the purchaser equal to the value of the commission and whose advice is
limited in scope to those products he is selling. That is fact based on
logic. As for the advisor being paid year after year vs the
salesman/broker only getting a commission on the 1st sale, that was well
answered by pointing out that future additions to the investments or
changes in the original investments would have to pay the 5% commissions
again. It would not be a one-time cost.
In any event, a new investor would be better served by subscribing to a
good service for a nominal amount each year and taking the advice of
Morningstar or Mutual Fund Investor and buying no-load funds recommended
by them. Another good source would be the Forbes annual mutual fund
survey.
guifredw from PA
Paul Maffia
>How much real investment skill does it take to dial the local Fed? I am
>sure most financial planners are full of pithy investment sound bites
>that sound informed. Financial planning has just as much of a tendency to
>be a racket as brokerage, maybe even more so... See Charles Givens,
>"Wealth Without Risk" LOLOL. For being computer literate, there are sure
>alot of gullible folks out here in cyberville. Friedman said it best,
>"There's no such thing as a free lunch." YOU GET WHAT YOU PAY FOR.
If your reference to Givens is that it is some kind of valid source for
financial info than you have fallen for far more "pithy investment sound
bites that sound informed." then most people will receive from financial
planners as a a group.
And that is even said granting the fact that too many of those who call
themselves Financial Planners are no more qualified to be giving advice
than Givens.
Paul M.
John Hedden Hackett
>So here we have a reasonable rule of investing:
> IF
> you have less than $4K to initially invest AND
> you are going to invest $2K/year or less in subsequent years AND
> you don't want to do any reading about investments AND
> you have no debt AND
> you have an honest and competent broker whose load funds will
> perform the same as similar no-load funds
> THEN
> you can do just as well (or better) with a broker than with a
> fee-based financial planner.
This thread is beginning to get absurd. First of all, there is no
free lunch. Fee based financial planners set their fees in accordance to
the amount they expect you to pay - the economically intelligent point to
set this is at a point just below that of a broker for comprable services.
And fee based financial planners are still vulnerable to all the marketing
idiocy that brokers are subjected to by their underwriting departments and
the mutual fund companies. It is possible to use a broker if you want to
adhere to these guidelines if you follow a few simple rules:
1) Go to a broker - tell him you want to buy index funds of various sorts
(ie. small cap, S+P, etc.) and make a well diversified portfolio.
2) Use a discount broker in this process and ask for the diversification
diagram that most of the brokerage houses have around. If you are
really clueless, it may help to go to a larger brokerage house
to get someone to explain all this to you. Just remember that you
want to buy no-load index funds, closed end funds selling at a
discount on the exchanges, or Treasury bonds/bills.
3) Buy no-load index funds and tell the broker you will be investing on a
regular basis. And not to call you. (Set the funds on dividend
reinvestment and don't mess with the diversification - decide
on your risk level and stick to it; ignore any financial news).
If you don't want to know about investing and can't judge the
quality of an investment manager (and most people can't - to do that well
you have to be a competant investment manager yourself) it makes sense
to use no-load index funds or closed end investment companies in a very
diversified portfolio. I included closed end funds because you can get
them at a discount, which shields you from the damage of an incompetant
fund manager. But the basic principle holds.
Brokerage houses don't make a lot of money selling this stuff
(as I understand the business) but rather on underwriting commissions,
fund loads, and heavy traders (again, as I understand the business).
Pick a brokerage house with low commissions if you have a clue (or a
full service brokerage house if you need a lot of handholding) and I
suspect that it will cost you less than a finacial planner.
As I said, this thread is beginning to get absurd.
William Rini
numbers out there pretty plain and simple and most have been willing to
accept my argument as being valid. But instead of just leaving it there,
now this has become an ever changing argument as Mr. Die Hard No Load,
keeps tweaking the numbers in his argument to find certain situations in
which my point would not be valid.
1. When I pointed out that 1% a year in investment advisor fees adds up
to more than 5% up front, the argument switched to investment
advisors that charge a fee not a percentage (of course when they
thought he had a valid argument based on the 1%, percentage based
advisors were fine)
2. Then it was argued by Mr. No Load that switching in and out of load
funds would incur new loads. I pointed out that people were free to
switch within a fund family at no fee (in most cases) and that many
of the larger well know fund families will allow you to transfer in
funds from another load mutual fund at no load.
3. Now without any sort of real argument left, Mr. No Load is resorting
to making up hypothetical situations. Even with the hypos, he has to
admit that certain people would be better off paying the load instead
of choosing an investment advisor. All of his IF, THEN arguments are
really starting to get absurd.
The point that should be learned from all of this is, that no matter how
much proof is presented to a person, if they are dogmatic enough in their
beliefs they will come up with a reason not to accept the truth.
Michael Novean
|> I have to agree with you this is getting pretty absurd. I put the
|> numbers out there pretty plain and simple and most have been willing to
|> accept my argument as being valid. But instead of just leaving it there,
|> now this has become an ever changing argument as Mr. Die Hard No Load,
|> keeps tweaking the numbers in his argument to find certain situations in
|> which my point would not be valid.
[very valid arguments deleted]
|> The point that should be learned from all of this is, that no matter how
|> much proof is presented to a person, if they are dogmatic enough in their
|> beliefs they will come up with a reason not to accept the truth.
|> --
|> Bill Rini <bil...@centcon.com>
Gee if thats not like the pot calling the kettle black. I'm sure many
would argue that you tweak the numbers in your favor to make load funds
look better.
The fact is paying a load on a fund is a very unpleasant proposition but
it may be a neccessary evil. In hindsight, paying the load to get into
the Seligman Comm fund would be worth it. Likewise, the Fidelity Sector
funds one-time fee of 3% is pretty stomachable considering the ability
to move your money from sector to sector. I don't think anyone likes to
lose some of their investment capital right off the bat but to argue
_EITHER WAY_ that a load fund or no-load fund is always better is
ludicrous.
Just my 1.9 cents worth (had to pay a 5% load)
Michael
* Michael Novean : Virginia Polytechnic Institute *
* nov...@vt.edu : and State University *
* nov...@apollo.aoe.vt.edu : Aerospace and Ocean Engineering *
Paul Maffia
> (al...@wiliki.eng.hawaii.edu) wrote:
> This thread is beginning to get absurd. First of all, there is no
>free lunch. Fee based financial planners set their fees in accordance to
>the amount they expect you to pay - the economically intelligent point to
>set this is at a point just below that of a broker for comprable services.
>And fee based financial planners are still vulnerable to all the marketing
>idiocy that brokers are subjected to by their underwriting departments and
>the mutual fund companies. It is possible to use a broker if you want to
>adhere to these guidelines if you follow a few simple rules:
Boy you are sure right, the thread is getting absurd, your note being a
prime example.
On what possible basis or evidence do you state that, "Fee based
financial planners set their fees in accordance to the amount they expect
you to pay - the economically intelligent point to set this is at a point
just below that of a broker for comparable services."
What makes you think that the services provided by any financial planner
has any comparability to the services provided by a broker other than
recommending investments.
Hint, since you obviously haven't a clue, real financial planners
(fee-only or not?) do far more than advice clients about investments and
more than any broker can do legally unless they are also in the planning
business.
Even more absurd is your contention that fee-based planners are, "... fee
based financial planners are still vulnerable to all the marketing idiocy
that brokers are subjected to by their underwriting departments and the
mutual fund companies."
Since fee-based planners don't sell anything and more often than not are
sole practitioners what "... marketing idiocy that brokers are subjected
to by their underwriting departments and the mutual fund companies." can
they possibly be subject to?
>1) Go to a broker - tell him you want to buy index funds of various sorts
> (ie. small cap, S+P, etc.) and make a well diversified portfolio.
>2) Use a discount broker in this process and ask for the diversification
> diagram that most of the brokerage houses have around. If you are
> really clueless, it may help to go to a larger brokerage house
> to get someone to explain all this to you. Just remember that you
> want to buy no-load index funds, closed end funds selling at a
> discount on the exchanges, or Treasury bonds/bills.
>3) Buy no-load index funds and tell the broker you will be investing on a
> regular basis. And not to call you. (Set the funds on dividend
> reinvestment and don't mess with the diversification - decide
> on your risk level and stick to it; ignore any financial news).
All these rules demonstrate is that you have no understanding of the
roles brokers in general have, much less discount brokers.
> If you don't want to know about investing and can't judge the
>quality of an investment manager (and most people can't - to do that well
>you have to be a competant investment manager yourself) it makes sense
>to use no-load index funds or closed end investment companies in a very
>diversified portfolio. I included closed end funds because you can get
>them at a discount, which shields you from the damage of an incompetant
>fund manager. But the basic principle holds.
> Brokerage houses don't make a lot of money selling this stuff
>(as I understand the business) but rather on underwriting commissions,
>fund loads, and heavy traders (again, as I understand the business).
>Pick a brokerage house with low commissions if you have a clue (or a
>full service brokerage house if you need a lot of handholding) and I
>suspect that it will cost you less than a finacial planner.
Ditto here.
> As I said, this thread is beginning to get absurd.
The only valid observation you make while you add to the absurdity.
Paul M.
John Hedden Hackett
I'm about to leave town Paul, but I'll try to respond to your points in the
same courteous manner that you raised them in.
> This thread is beginning to get absurd. First of all, there is no
>free lunch. Fee based financial planners set their fees in accordance to
>the amount they expect you to pay - the economically intelligent point to
>set this is at a point just below that of a broker for comprable services.
>And fee based financial planners are still vulnerable to all the marketing
>idiocy that brokers are subjected to by their underwriting departments and
>the mutual fund companies. It is possible to use a broker if you want to
>adhere to these guidelines if you follow a few simple rules:
>Boy you are sure right, the thread is getting absurd, your note being a
>prime example.
Gee, can't miss letting off a sarcastic (sarcaustic?) wisecrack right
from the start, can you, eh?
>On what possible basis or evidence do you state that, "Fee based
>financial planners set their fees in accordance to the amount they expect
<you to pay - the economically intelligent point to set this is at a point
>just below that of a broker for comparable services."
Because, in the long run, that is what services that should be
substitutes for each other should cost - and since both groups are, for
THIS SPECIFIC EXAMPLE, providing similar services - this is what an
intelligent consumer should try to find. FOR THIS SPECIFIC SET OF SERVICES.
>What makes you think that the services provided by any financial planner
>has any comparability to the services provided by a broker other than
>recommending investments.
I never said that it did directly - but since, as I understand
the manner in which this investment plan was being proposed, you are
going to a broker or a financial planner for just investment reasons.
Don't rewrite your assumptions to fit the situation - I'm not going there
to do estate planning or anything like that - THAT WASN'T IN THE PROBLEM.
>Hint, since you obviously haven't a clue, real financial planners
>(fee-only or not?) do far more than advice clients about investments and
>more than any broker can do legally unless they are also in the planning
>business.
I am aware that there are a large number of other services that can be
offered by a financial planner, depending on the level of the financial
planner's skills. As I understand it, the preparation course includes
work related to taxes, estate planning, and assisting people in planning
for things such as retirement and future needs. Most of them also have
other qualification, including series 6, 7, and Life liscenses (I'm not
sure which are required - but I know they need series 6 or 7 to sell you MF's).
I'm also referring only to financial planners providing services to
individuals, as opposed to the various pension fund and business consulting
services out there.
>Even more absurd is your contention that fee-based planners are, "... fee
>based financial planners are still vulnerable to all the marketing idiocy
>that brokers are subjected to by their underwriting departments and the
>mutual fund companies."
>Since fee-based planners don't sell anything and more often than not are
>sole practitioners what "... marketing idiocy that brokers are subjected
>to by their underwriting departments and the mutual fund companies." can
>they possibly be subject to?
How do they learn which mutual funds are out there without at least some
contact with the marketing operation of the mutual fund companies?
Answer me that question, eh?
In any event, you seem to have missed my point - fee based financial planners,
like brokers, are making, at some level, investment decisions that they may or
may not be capable of doing well. If you want safety, why not remove the human
from the process of deciding who is a good fund manager? Why not just buy index
funds - preferably no load index funds - or closed end funds selling at a discount.
>>1) Go to a broker - tell him you want to buy index funds of various sorts
>> (ie. small cap, S+P, etc.) and make a well diversified portfolio.
>>2) Use a discount broker in this process and ask for the diversification
>> diagram that most of the brokerage houses have around. If you are
>> really clueless, it may help to go to a larger brokerage house
>> to get someone to explain all this to you. Just remember that you
>> want to buy no-load index funds, closed end funds selling at a
>> discount on the exchanges, or Treasury bonds/bills.
>>3) Buy no-load index funds and tell the broker you will be investing on a
>> regular basis. And not to call you. (Set the funds on dividend
>> reinvestment and don't mess with the diversification - decide
>> on your risk level and stick to it; ignore any financial news).
Oh really? Advice is quite optional. Granted that this is not always the most
lucrative for the broker, but it's called asserting yourself. March into their
office, resist any sales pressure, tell them what you want to buy. If they have
a problem with that, get another broker.
As a general rule the advice is pretty much worthless, except when you ask a
direct question and demand a direct answer.
When I ask a broker a question, I want a simple direct answer. Period. Without
any attempt to steer me into whatever is written up on the chalkboard as the
stuff to pass off to the suckers. They get one warning.
But thank you for your comments and I'll look through my Series 7 review manual
to see where it is written that a broker can ignore my requests/orders and feed
me bullshit with impunity. And a number of the "full-service" discount brokers
do have that sort of stuff around, by the way, if you ask. I personally don't
give a damm what the industry standard is - I know what I want and if I don't
get it, I'll find another broker.
>> If you don't want to know about investing and can't judge the
>>quality of an investment manager (and most people can't - to do that well
>>you have to be a competant investment manager yourself) it makes sense
>>to use no-load index funds or closed end investment companies in a very
>>diversified portfolio. I included closed end funds because you can get
>>them at a discount, which shields you from the damage of an incompetant
>>fund manager. But the basic principle holds.
>> Brokerage houses don't make a lot of money selling this stuff
>>(as I understand the business) but rather on underwriting commissions,
>>fund loads, and heavy traders (again, as I understand the business).
>>Pick a brokerage house with low commissions if you have a clue (or a
>>full service brokerage house if you need a lot of handholding) and I
>>suspect that it will cost you less than a finacial planner.
>Ditto here.
Ok, tell me how you judge IN A STATISTICALLY VALID FASHION, which mutual
fund managers are competant. By statistically valid, I mean in such a manner
that a non-investor can determine whether they are good or not. I maintain that
this cannot be done in a reliable manner and it makes more sense to use an index
fund. In order to make a GOOD judgement about an investment manager you need to
be one yourself - and I don't trust a lot of the public sources. Professional
investors don't always beat the general market by that much, and charge much
higher annual fees than a regular mutual fund. The discount on a closed end fund
helps shield you from this.
Since you profess to have such a god-like knowledge of how brokerage houses
make their money, perhaps you might share it with the rest of us mere mortals.
What I said was based on what I have read and what a few I-bankers have told me
in response to questions about the operations of the distribution arms of their
operations. I qualified this with an indication of doubt - I am not a broker and
do not at this point intend to become one. Instead of flaming people who disagree
with you, why don't you try to add some fact to this discussion?
>> As I said, this thread is beginning to get absurd.
>The only valid observation you make while you add to the absurdity.
> Paul M.
Nothing you have said has made a significant impact on the operational feasibility
of what I was proposing. The one possible exception to this might be that you need
to check the prices before you go, which can be done with a simple phone call if
you are resonably persistant and demand a straight answer. If they don't give you
a straight answer, hang up......
BTW, word of warning - I personally am not following a plan of this nature. I think
that that vast majority of mutual funds are effectively equal, regardless of what
your broker tells you, and that it is difficult to earn exceptional returns on your
investments via mutual funds. It makes more sense to use no-load index and closed
end funds, assuming that you can locate a no-load index fund. The broker/financial
planner question is getting absurd and I would like to ask which of the people
arguing on the side of the financial planners are CFP's themselves.
Alex Quilici
>al...@wiliki.eng.hawaii.edu (Alex Quilici) wrote:
>>
>>Besides, the no-load frees you to make quick trades if you realize you
>>made a mistake. You don't have that same freedom with a load.
>
>Nor do you have a reason to stay the long haul with a fund. Unless you
>are advocating market timing, then switching in and out of funds for most
>novice fund buyers actually could hinder performance.
I wasn't advocating market timing. There are lots of other reasons
to change funds--a change in fund manager to a manager with less
experience, or a change in the fund's investments so that the fund
no longer fills its intended role in the portfolio (e.g, a domestic
growth fund that suddenly starts investing significant portions of
its assets internationally). Or what about a fund that underperforms
its peers for several years? It's certainly reasonable to consider
switching out of that fund, isn't it? That's hardly market timing.
>>And what's the point behind your other question? I can ask you the
>>same thing: "For every load fund you own, from the time you owned it,
>>has it been outperformed by any no-load fund in the same sector?"
>>So what?
>
>Ask away Alex, but answer the question as I am willing to do. I own the
>following three funds. Janus Worldwide, Wells Fargo Corporate Stock Fund
>(in my IRA) and PBHG Growth (actually I sold it last week to move the
>money into some individual stocks, so I really own 2 mutual funds).
I still don't get the point of your question. Are you saying that it's
hard to pick the best performing funds? That's all the more reason to
pick no-loads, isn't it? At the very least they don't have to make
up for the load.
But to answer your question: The short answer is that, yes, some of my
no-load funds have been beaten by load funds in their particular
category during the time I've owned them. But that's tended to be in
specialized fund categories. Other funds, like Oakmark and Montgomery
Growth, have been at or near the top of their category the entire time
I've owned them.
But again, so what?
>>What most no-load advocates are arguing is that brokers claim the
>>load is compensation for their giving clients advice. But why
>>should brokers be making commissions for giving advice when (1)
>>the law prevents them from giving good advice, or (2) that
>>advice is biased by the amount of commissions they make.
>
>The fund is
>not the only thing they are recommending (other non-compensated advice is
>also given all of the time...asset allocation, etc.), so this is a falacy
>right off the bat.
As a broker, do you get involved in things like tax planning, debt
repayment, refinancing a house, and so on? Those are the kinds of
things that a fee-based advisor gets into. Don't you agree that
brokers tend to give advice directly related to the products they sell?
And broker advice is biased, perhaps not intentionally, but it is
biased nonetheless. No broker will tell a client to use Treasury
Direct to buy T-bills. And I wouldn't expect them to because, as you
point out, they aren't paid to recommend investments that don't make
money for the broker. But that means there is a world of investment
opportunities that brokers will not advise their clients to buy.
> Second you speak out of one side of your mouth by
>saying that it's OK to pay for advice, but then imply that people should
>not pay commissions. So is paying a fee better than paying a commission?
Yes, frankly, it is. Because the commission is for the sale of a
product and gives the broker an incentive to sell that particular
product and to ignore products for which there is no commission.
A fee is for advice and gives the advice-giver an incentive to
provide the best possible advice for the client.
>If I am a fee based planner, and I charge 1% of investments under
>management, and I recommend a no load fund, after 5 years you have still
>paid 5% (actually, since one should expect positive returns over a 5 year
>period I would have collected more than 5% as the assets grew each
>year). Now if you bought a load fund you pay the 5% up front and
>assuming the 12b1 and all other fees are roughly equal, after year 5 any
>advice you receive from me is FREE (if compared to the fee based
>advisor). You are still paying 1% a year for the fee based advisor every
>year.
There's a post of mine floating around that addresses these issues, but
the crucial points are: (1) there are fee-based advisors who charge a
flat rate, not a percentage of assets or investments, and (2) you are
ignoring the load paid each year on newly invested money.
>And as for your two points
>
>(1) Then shouldn't you be saving your accusations for the brokerage firm
>instead of trying to imply that the broker is doing something unethical?
To some extent you are right.
But whether or not the broker or the brokerage is responsible for this
sad situation isn't really the issue, is it? The issue is: As an
investor, I have money to invest and I have some costs associated with
deciding where to invest and actually making those investments. The
question is, how is that money that's not actually invested best spent?
>(2) Almost every fund has the same commission (load) structure. Unless
>we are talking proprietary funds (ahem...Dean Witter), then I get paid
>the same for advising you to buy either load fund A or load fund B. How
>is my recommendation biased if you know that I am only showing you loaded
>funds?
Because you are excluding a world of funds (and other investments)
from consideration. If you want to call it something other than bias,
fine. If you want to say the broker isn't "intentionally biased",
fine. Regardless, however, it is still a bias.
>Are you saying
>I should tell a client "Mr. Jones I recommend you put X% into large caps,
>x% into small caps, X% into bonds, and X% into foriegn equities. But
>since there are some pretty good large cap, small cap, and bond, no load
>funds. Go buy them elsewhere and then come back so I can sell you this
>great international equity fund." If you are suggesting this, I would
>like to invite you into the real world Alex.
No, that's not it at all.
What I'm suggesting is that most people should avoid brokers because
they can't give advice like this yet this is exactly the kind of advice
that would most benefit the consumer.
And if you are not giving this client this advice then you are not
giving the client the best advice possible.
You know, Bill, your posts are consistently making the case that the
real-world prevents brokers from giving the best advice. And you
are essentially saying, "Hey, brokers need to make living, and the
way they make a living is by helping clients choose from the set
of funds they get paid to sell".
>>What specific services
>>do these load funds provide that no-loads don't? And can you justify
>>these services being worth 5% or more of someone's initial investment?
>
>[...] but when I have 50 or
>100 clients with several million dollars in a fund, you bet your ass,
>when I call I get answers and my clients get better service if they have
>any problems. Although as a percentage of the assets under management,
>mutual funds accounted for only a small portion, but whenever I placed a
>decent sized order ($25,000+), I got a call from the fund company, offers
>of assistance, and all my clients who owned that family of funds
>benefited.
Finally, a real justification for paying an additional fee to a broker:
the combined assets of all the clients in a fund the broker is selling
gives the broker power to get information that an individual investor
might not be able to get on their own.
Of course, this means that a client should shop around for the brokers
that have the most money in the funds in which they are going to invest.
You certainly wouldn't want to pay a load to a broker who has only a
few clients--since you are then likely to be ignored, despite having
paid the load.
--Alex
Paul Maffia
> Gee, can't miss letting off a sarcastic (sarcaustic?) wisecrack right
>from the start, can you, eh?
The remark may well be sarcastic, but it is 100% accurate. Your entire
posting added absolutely nothing to the discussion. Ergo, it added to the
absurdity of the discussion.
>>On what possible basis or evidence do you state that, "Fee based
>>financial planners set their fees in accordance to the amount they expect
><you to pay - the economically intelligent point to set this is at a point
>>just below that of a broker for comparable services."
> Because, in the long run, that is what services that should be
>substitutes for each other should cost - and since both groups are, for
>THIS SPECIFIC EXAMPLE, providing similar services - this is what an
>intelligent consumer should try to find. FOR THIS SPECIFIC SET OF SERVICES.
Why? A fee only planner will set their fee based on their costs and
profit target as well as giving consideration to the expertise they have
established and the reputation they have developed. In other words, an
ego component. They will also consider the fact that although they could
probably charge a much lower fee, physiologically that may not be
desirable in attracting clients as it may appear too cheap to be worth it.
> I never said that it did directly - but since, as I understand
>the manner in which this investment plan was being proposed, you are
>going to a broker or a financial planner for just investment reasons.
>Don't rewrite your assumptions to fit the situation - I'm not going there
>to do estate planning or anything like that - THAT WASN'T IN THE PROBLEM.
Aside from the fact that you did say so directly, the remainder of your
scenario may well be valid but really has nothing to do with how a
fee-only financial planner set their fees. Fee structures range from
simple per hour charges, a standard set fee for a comprehensive plan
preparation with hourly charges for other work after development and
delivery of a financial plan, a charge based on total net worth, to
charges based on amount of investable funds.
Those who mainly concentrate on investment advising most often will
charge a percentage of funds under management. This is the one that
mainly fits your scenario. Those fees are similar to those charged by
Investment Advisors who are not financial planners and is usually a
percentage rate on total funds under management for a client.
In this case, a client can well be better off, if they have a good,
competent, ethical broker since with an investment manager, the fee paid
is always in addition to any brokerage charges incurred in the management
of the portfolio. But then, unless their account with the broker is
substantial with comparatively frequent trades generating substantial
commissions, they will not and cannot possibly receive the level of
personal attention from the broker that an investment manager supposedly
provides. So there is a trade off.
The investment management fee is not set with any consideration to
brokerage charges.
>>Hint, since you obviously haven't a clue, real financial planners
>>(fee-only or not?) do far more than advice clients about investments and
>>more than any broker can do legally unless they are also in the planning
>>business.
>I am aware that there are a large number of other services that can be
>offered by a financial planner, depending on the level of the financial
>planner's skills. As I understand it, the preparation course includes
>work related to taxes, estate planning, and assisting people in planning
>for things such as retirement and future needs. Most of them also have
>other qualification, including series 6, 7, and Life liscenses (I'm not
>sure which are required - but I know they need series 6 or 7 to sell you MF's).
>I'm also referring only to financial planners providing services to
>individuals, as opposed to the various pension fund and business consulting
>services out there.
But fee-only financial planners, especially those providing services
solely to individuals, don't sell mutual funds or any other products. For
some reason that critical point continues to escape your understanding.
>How do they learn which mutual funds are out there without at least some
>contact with the marketing operation of the mutual fund companies?
>Answer me that question, eh?
Gee the simpliest of all. There are so many sources of Mutual Fund
information as well as for other financial products (i.e. stocks and
bonds, insurance, etc.) that a fee only financial planner has absolutely
no need to have any contact with the marketing operation of any mutual
fund company. There is Morningstar, Barron's, Forbes, both Money and
Kiplinger magazines as well as Business Week, Smart Money, the wall
Street Journal, Lipper, Steele, Weisenburger (sp?), and the list goes on.
and the list can and does include anonymous contact with the funds
themselves via requesting prospectuses and even calling for info or even
asking to talk to the individual fund managers.
They can also establish formal contacts with the marketing arm to provide
them the means to deal with client problems directly with a fund rep,
without compensation by the fund or fund management company. they can
also associate with discount brokers such as Schwab, again with no
compensation, solely as a means for dealing with Schwab on behalf of a
client.
Establishing formal contact with the funds themselves or with discount
brokers allows for the planner to obtain a copy of all client statements
if the client so directs and authorizes. But again, no compensation by
the fund or broker is involved.
In other words, your belief that fee-only planners suffer under the same
pressures as brokers is utterly ridiculous. If the fund or brokerage isn't
paying, what pressure can they exert?
>In any event, you seem to have missed my point - fee based financial
planners,
>like brokers, are making, at some level, investment decisions that they may or
>may not be capable of doing well. If you want safety, why not remove the human
>from the process of deciding who is a good fund manager? Why not just buy index
>funds - preferably no load index funds - or closed end funds selling at a discount.
or closed end funds selling at a discount.
Gee that is even true of individuals making investment decisions on their own.
>>>1) Go to a broker - tell him you want to buy index funds of various sorts
>>> (ie. small cap, S+P, etc.) and make a well diversified portfolio.
Why waste a broker's or planner's time and your own money if this is your
approach. since you have already decided how you should invest and the
products you feel necessary for implementing the plan, deal directly with
the funds, pay no commission or fee to anyone.
>>>2) Use a discount broker in this process and ask for the diversification
>>> diagram that most of the brokerage houses have around. If you are
>>> really clueless, it may help to go to a larger brokerage house
>>> to get someone to explain all this to you. Just remember that you
>>> want to buy no-load index funds, closed end funds selling at a
>>> discount on the exchanges, or Treasury bonds/bills.
But you miss the point again. In your list above, the only items you must
have a broker to purchase are the closed end funds. the no-load funds are
purchasable directly from the funds with no broker intervention
necessary. the only reason to use a discount broker to purchase them is
because you are planning to buy a number of them and prefer receiving
only one statement totally summerizing your position instead of one from
each fund. And unless your account hits a specified minimum, you will pay
a service charge for the privilege with the discount broker. the T bills
and binds are also purchasable directly at no cost.
And one would buy closed end funds with a discount if there is no valid
reason for the discount such as a bunch of bad investments by the fund.
>>>3) Buy no-load index funds and tell the broker you will be investing on a
>>> regular basis. And not to call you. (Set the funds on dividend
>>> reinvestment and don't mess with the diversification - decide
>>> on your risk level and stick to it; ignore any financial news).
If you buy no-load index funds, you don't have to tell the broker not to
call, whether you invest on a regular basis or not. Since they won't be
earning anything, and not about to, they haven't got time to waste
calling you. And the discount brokers won't anyone, that's why they are
discount brokers.
>Oh really? Advice is quite optional. Granted that this is not always the most
>lucrative for the broker, but it's called asserting yourself. March into their
>office, resist any sales pressure, tell them what you want to buy. If they have
>a problem with that, get another broker.
Gee if you deal with a discount broker that is an absolute necessity. if
you deal with a full service broker, he is not about to waste his time on
a client not producing revenue supplying you info.
>As a general rule the advice is pretty much worthless, except when you ask a
>direct question and demand a direct answer.
If your statement that as a general rule the advice is worthless then it
will be so whether you ask a direct question of not. so your observation
is rather worthless.
>When I ask a broker a question, I want a simple direct answer. Period. Without
>any attempt to steer me into whatever is written up on the chalkboard as the
>stuff to pass off to the suckers. They get one warning.
Gee big deal!! Anyone who has gone beyond step one in investing should be
at that point. But if you are not producing revenue because you are
buying no-load funds and you demand answers from a full service broker, he
will tell you to take a flying jump at a rolling donut if you make a pest
of yourself. and if you are dealing with a discount broker, the
information they can provide is limited. so you are back to square one.
>But thank you for your comments and I'll look through my Series 7 review manual
>to see where it is written that a broker can ignore my requests/orders and feed
>me bullshit with impunity. And a number of the "full-service" discount brokers
>do have that sort of stuff around, by the way, if you ask. I personally don't
>give a damm what the industry standard is - I know what I want and if I don't
>get it, I'll find another broker.
>>> If you don't want to know about investing and can't judge the
>>>quality of an investment manager (and most people can't - to do that well
>>>you have to be a competant investment manager yourself) it makes sense
>>>to use no-load index funds or closed end investment companies in a very
>>>diversified portfolio. I included closed end funds because you can get
>>>them at a discount, which shields you from the damage of an incompetant
>>>fund manager. But the basic principle holds.
Using closed end funds selling at a discount will only shield you from
the damage of an incompetent manager if the discount exists for some
reason other than an incompetent fund manager.
> Ok, tell me how you judge IN A STATISTICALLY VALID FASHION, which mutual
>fund managers are competant. By statistically valid, I mean in such a manner
>that a non-investor can determine whether they are good or not. I maintain that
>this cannot be done in a reliable manner and it makes more sense to use an index
>fund. In order to make a GOOD judgement about an investment manager you need to
>be one yourself - and I don't trust a lot of the public sources. Professional
>investors don't always beat the general market by that much, and charge much
>higher annual fees than a regular mutual fund. The discount on a closed end fund
>helps shield you from this.
Gee another sterling observation. If you had not noticed, there is NO
STATISTICALLY VALID FASHION for judging the competence of a fund
manager, investment manager, investment, managers or any number of other
things. There are only indicators that any person of normal intelligence
who is willing to spend the time and effort to learn can use. And all
they do is improve the odds of making good choices, it does not guarantee
them.
> Since you profess to have such a god-like knowledge of how brokerage houses
>make their money, perhaps you might share it with the rest of us mere mortals.
>What I said was based on what I have read and what a few I-bankers have told me
>in response to questions about the operations of the distribution arms of their
>operations. I qualified this with an indication of doubt - I am not a broker and
>do not at this point intend to become one. Instead of flaming people who disagree
>with you, why don't you try to add some fact to this discussion?
I have never made any claims to god-like knowledge. But compared to you
it must seem that way.
Aside from that bit of sarcasm,. if you had not noticed, I spend a lot
more time sharing facts instead of flaming. But I sure as hell will
always point out the pure BS and inanities people post here.
>Nothing you have said has made a significant impact on the operational feasibility
>of what I was proposing. The one possible exception to this might be that you need
>to check the prices before you go, which can be done with a simple phone call if
>you are resonably persistant and demand a straight answer. If they don't give you
>a straight answer, hang up......
It wouldn't to you, but that is another story.
>BTW, word of warning - I personally am not following a plan of this nature. I think
>that that vast majority of mutual funds are effectively equal, regardless of what
>your broker tells you, and that it is difficult to earn exceptional returns on your
>investments via mutual funds. It makes more sense to use no-load index and closed
>end funds, assuming that you can locate a no-load index fund. The broker/financial
>planner question is getting absurd and I would like to ask which of the people
>arguing on the side of the financial planners are CFP's themselves.
And so we come to further absurdities. The best index funds around are all
true no-loads. But obviously you don't know that a presume to preach a
strategy you don't follow and obviously would be unqualified to implement
if you did.
The arguments pro or con about using or not using a Financial Planner or
broker or investment manager SHOULD stand on their own. They either make
sense or not. And they are either persuasive to you or any other
individual or not. who advances them should not enter into the validity
of the argument.
But one thing for sure, introducing a bunch of absurdities and
irrelevancies into the argument while lambasting the supposed absurdities
you have admitted you don't understand lends nothing whatsoever to the
discussion.
Paul M.
William Rini
this discussion. All I have been doing here is pointing out flaws in the
logic used by some of the no loaders, I don't have to tweak numbers to do
that, any moron can look and see that paying 1% a year for 20 years is
worse than paying 5% upfront. Granted in hindsight I'm sure Alex would
withdraw such a nonesense argument, seeing how illogical it is, but my
whole point is (and has been from the beginning) that there is no absolute
one way is better than another in all circumstances. My original comments
when I got sucked into this discussion had to do with pointing out that
not everyone feels secure enough to manage their own investments. Because
for awhile it seemed the only argument I was hearing is that only dummies
would buy load funds. And as I point out the flaws in the logic of the
arguments, the no loaders keep changing the argument trying to find a
situation where they can say they are right. I am not anti-no load, as I
have said in the past, I own them and have recommended them to friends,
family and clients (off the record to clients to avoid any sort of
"selling away" implications). But liking no loads is not a reason to
abandon reason.
Alex Quilici
>I would like you to point out where I have have tweaked any numbers in
>this discussion. All I have been doing here is pointing out flaws in the
>logic used by some of the no loaders, I don't have to tweak numbers to do
>that, any moron can look and see that paying 1% a year for 20 years is
>worse than paying 5% upfront.
You know, Bill, I don't think you tweak numbers. But what you do instead
is worse: You consistently set up straw men arguments, attribute them
to no-loaders, and then happily knock them down.
Show me a posting where someone in the no-load camp suggested that
people should pay 1% a year for 20 years for advice. That was *your*
hypothetical alternative to getting advice from load funds.
We (Paul and I and others) have pointed out that there are financial
planners and advisors that charge a flat-fee or hourly rate for their
advice. I even called some advisors here in Honolulu, found out what
they charged, and posted their rates. I even took the time to post
a message showing that given the rates I was quoted, buying load
funds to receive advice could be construed as a reasonable alternative
to paying a fee-based advisor for certain investment amounts.
How is that tweaking numbers?
> Granted in hindsight I'm sure Alex would
> withdraw such a nonesense argument, seeing how illogical it is,
Here you go again. I never ever said that people should pay 1% a
year for advice on which no-load funds to choose. In fact, I argued
against brokerage wrap accounts for that very reason.
Please try not to put words in someone's mouth and then criticize
them for something they never said.
>[...] but my
>whole point is (and has been from the beginning) that there is no absolute
>one way is better than another in all circumstances. My original comments
>when I got sucked into this discussion had to do with pointing out that
>not everyone feels secure enough to manage their own investments. Because
>for awhile it seemed the only argument I was hearing is that only dummies
>would buy load funds.
Here you won't get much disagreement. Most no-loaders would agree with
you that there is no one way that is better than another no matter what.
In fact, I think the real question is:
Under what conditions is a load fund appropriate?
Almost all no-loaders will agree that a load fund is appropriate when
it is in a class by itself in terms of past performance and there
is reason to expect that performance will continue. Who on earth
is disputing that? Many of us no-loaders own a load fund or two,
although many of us, like me, also try to avoid paying the load by
buying them with retirement money so that the load is waived
or buy them only after thorougly looking at all alternative no-loads.
It's beyond that where we start to disagree.
You've claimed that one good reason to buy load funds is to receive a
broker's advice. You've claimed that this is quality advice. But
lots of us have pointed out that there are plenty of constraints on
brokers that prevent them from giving the same quality of advice
as other alternatives. You've also claimed that this is cost-effective
advice (i.e., cheaper than other alternatives). I've put up postings
that roughly calculate when that argument holds and when it doesn't.
At one point, you claimed that load funds perform better than no-load
funds. Many, many netters jumped all over you on that one and clearly
demonstrated that claim just simply isn't true.
But you've made plenty of claims that no-loaders haven't disputed. No
one, for example, has slammed your claim that a broker with millions
of dollars in clients money invested in a particular fund will be able
to have direct contact with the portfolio manager and therefore possibly
provide better service to their clients. (Of course, whether this
matters is another issue.) Nor has anyone really disputed your claim
that load funds tend to have fewer redemptions in market downturns
than no-load funds.
So it's simply not true that no-loaders are unreasonable zealots,
so maybe you ought to refrain from silly statements like this one:
>And as I point out the flaws in the logic of the
>arguments, the no loaders keep changing the argument trying to find a
>situation where they can say they are right.
As somone else posted, talk about the pot calling the kettle black.
A load-fund advocate has a tough task. The bottom line is that you
to justify the extra cost of buying those funds. Many of the
justifications that you and others have come up with are complete
nonsense and no-loaders rightly point that out. Other justifications
are only reasonable in certain circumstances and no-loaders try to
carefully dilineate those circumstances.
How on earth is that changing the argument? That sounds like the
epitome of reasoned discussion to me.
>But liking no loads is not a reason to abandon reason.
And neither is trying to make a profit by selling load funds.
--Alex
Jim McGrath
William Rini <bil...@centcon.com> writes:
>While I think that this is good advice whether or not someone decides to
>obtain the help of a financial planner or a broker, it avoids the
>question I raised and the poster asked. I noticed that when I brought up
>this point (a 1% annual fee over 30 years would cost more than 5% up
>front) that Alex and most of the no loaders vanished. I bring up Alex
>because he advocated using fee based financial planners because they
>would not be biased in recommending load funds (if the person felt the
>need to seek advice in the first place). But why can't I even get a no
>loader follow up? I presume it's because they can't dispute the fact
>that a fee based advisor will cost more than a commissioned broker
>(assuming both are honest and both present the best product that they
>have available).
>
>Any comments no loaders????????
Well, I'm mostly a no-loader. I'd never pay someone an annual fee to
manage a mutual fund portfolio. I'm already paying the fund manager
to manage a portfolio of stocks. I see no need to pay for two levels
of active management. The 1% a year makes a lot more sense if the
advisor is managing a portfolio of individual stocks. It then seems
very comperable to mutual fund management expenses.
It might make sense to pay an hourly fee to tune up a mutual fund
portfolio once a year. Actively managing a mutual fund portfolio
seems too much like market timing to me.
Jim McGrath
ji...@habanero.hi.com
LewMann
There ain't no free lunch. If you want help making investment decisions
you have to pay for it. Either you pay a Registered Rep. via sales loads
or you pay a money manager a fee based upon a percentage of assets. By the
way, the money manager has a vested interest in growing your money.
Afterall, the money in your account the more he earns!
Lewis Mann, RFC
Gainesville, FL
KEITH JOHNSON
Wrongo!!
At Schwab, our clients can purchase more than 250 no load funds and we
will help them determine what fund(s) best meet their objectives. That
includes up to and including recommending specific funds if need be. No
one @ Schwab works on commission, so that concern is lessened. Schwab of
old was a traditional discount firm, very much transaction oriented but
that has changed. We are very much a full service firm.
These types of services and recommendations are made every day by myself
and other specialists @ Schwab. By the way, I am a Registered Rep with 8
yrs experience in the industry, most of which was in the commission
arena. That experience level is about average for my specialty.
Keith Johnson
Regional Investment Specialist
Charles Schwab & Co., Inc.
Dallas
800-382-0174
Thomas Wang
> Simply stated "no load" means "NO HELP"!!!
What about Vanguard's free quarterly investment newsletters, and free
planning guides? They are very helpful to me. Didn't Lipper suggest
that no load funds have better investment reports?
> Lewis Mann, RFC
-Thomas Wang (Computing work increases system entropy.)
wa...@cup.hp.com http://hpodb03.cup.hp.com/~wang/wang.html