|
|
 |
 |
Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.
|
|
August 21, 2003
"Mutual Fund Fee Disclosure"
For many years, mutual funds have had different levels of fees that are paid
to brokers to entice them to sell their funds over those of competitors.
Now, the NASD, the rule-making body of the securities business, is proposing
that funds have to tell investors about these hidden fees.
The rule would force funds, for the first time, to disclose to investors what
incentive compensation funds are paying to brokers. Of course, this money
ultimately comes from shareholders' pockets, lowering their returns. Funds
often have to pay for “shelf space,” which is a brokerage firm's willingness
to sell a fund in the first place, and then pay incentive fees on top of
that to get the broker’s attention to sell their fund. Usually, this extra
incentive money is cash, but often it has also been junket vacations or
other perks to get brokers to sell their fund. This bonus money can be paid,
in some cases, whenever a broker sells any fund in a fund family, or
sometimes, just for particular funds the fund family wants to push at the
moment.
Since the stock market plunge of the last few years, fund fees and charges
have become far more important. When people were earning 20% a year in the
1990s, people didn’t look at fees very much, but now, it hurts to pay higher
fees for the privilege of losing money. Similarly, with bond funds, it doesn’t make much sense to pay high fees when the funds are only earning 3% or 4%
anyway.
Brokers have also been criticized recently by the SEC for selling a lot of
Class B shares, instead of Class A shares. Class B shares have no upfront
sales commission, or load, which sounds good to investors. But instead, they
charge an annual fee for as much as 1%, called a 12b-1 marketing fee, which
goes to brokers for as long as the shareholder is in the fund. So, if you
plan to be in a fund for a long time, it might make more sense to buy the A
shares, get the fee over with, and not have an annual fee to pay the broker
forever.
So, even though it doesn’t seem that important or costly, it is worthwhile
to scrutinize the fees you are paying whenever you buy a mutual fund these
days.
For More Financial Tips From Jordan Goodman
|
|
