Mutual Fund Commissions

Financial advisors make money off of mutual funds in a few different ways. There are three basic types:

A shares
B shares
C shares
No Load Funds

Examples:

$100,000 invested into a mutual fund that has a front load or A share will net an advisor about $5000 bucks. If the A share has an upfront load or sales charge of 5%. Oh by the way the $5,000 is deducted from your $100,000. You invest $95,000.

$100,000 invested into a B share pays about the same to an advisor. The difference is 100% of your money is invested upfront. You invest $100,000. Here is the catch there is a 6 year surrender charge on your money. You take it out you get charged! The surrender charge schedule looks like this. 6%, 5%, 4%, 3%, 2%, 1%.

C shares are bad all the way around because the advisor gets a low pay out, about 1% and the client gets a 2% surrender charge and a 1% asset mange fee each year.

These funds are called loaded funds. No load funds are less expensive but the management fees are pretty high. They are still less expensive than the loaded funds. The advisor gets no pay from the no load funds. Which means if you need help with your investment you get an 800 number and customer service people to talk to. They are usually pretty knowledgable.

People have been trained to buy mutual funds because they are diversified. Yeah right! They go down just as fast as stocks in a really bad market. So you just have to know the incesntive behind the sale of a fund. Always ask the advisor how much they get paid on the fund before you purchase it. Make sure they tell you about the 12-B 1 fees they receive.

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