Financial Advisor Question

I have been using a financial advisor for several years for help in
choosing mutual funds. Recently, I have been learning more about
mutual funds and investing in general, and I'm almost to the point of
being comfortable and capable of making my own investment choices. I
own about 7 different funds and each one are B class shares and carry a
1% 12b-1 fee.

The advisor/broker makes money from the 12b-1 fee, correct? I
understand the front vs. back end load for A and B class shares, but
does the advisor/broker make more money by suggesting B class shares
vs. A class shares? If the advisor does make money from the 12b-1 and
B class, does he make money anywhere else?

Would an advisor tell me to go to hell if I instructed him to buy A
class shares with little or no 12b-1 fees?

Thanks for any help you guys can provide.

Re: Financial Advisor Question

wrote:

If the advisor does make money from the 12b-1 and
> B class, does he make money anywhere else?

Better than not to believe, I believe. Someone advised me that she
lost $600,000 out of $900,000/US with an advisor.

Would an advisor tell me to go to hell if I instructed him to buy A
> class shares with little or no 12b-1 fees?

Not in so many words. You'll need to learn the business well enough to
be suspect for judging someone. A degree of self-assurance will then
enable you to coax a common defense response for impinging upon his
perceived livlihood.

-Bet; you have no choice. You're in the game. B.Pascal.

Re: Financial Advisor Question

<> wrote in message
news:
> I have been using a financial advisor for several years for help in
> choosing mutual funds. Recently, I have been learning more about
> mutual funds and investing in general, and I'm almost to the point of
> being comfortable and capable of making my own investment choices. I
> own about 7 different funds and each one are B class shares and carry a
> 1% 12b-1 fee.
>
> The advisor/broker makes money from the 12b-1 fee, correct? I
> understand the front vs. back end load for A and B class shares, but
> does the advisor/broker make more money by suggesting B class shares
> vs. A class shares? If the advisor does make money from the 12b-1 and
> B class, does he make money anywhere else?
>
> Would an advisor tell me to go to hell if I instructed him to buy A
> class shares with little or no 12b-1 fees?

Fat commission now or thin commission over time. I don't think he/she would
have a problem. Do you really need this person's help? If not, consider
no-load funds with no 12b-1 fees.

-herb

Re: Financial Advisor Question

<> wrote

>I have been using a financial advisor for several years for help in
> choosing mutual funds. Recently, I have been learning more about
> mutual funds and investing in general, and I'm almost to the point of
> being comfortable and capable of making my own investment choices. I
> own about 7 different funds and each one are B class shares and carry a
> 1% 12b-1 fee.
>
> The advisor/broker makes money from the 12b-1 fee, correct? I
> understand the front vs. back end load for A and B class shares, but
> does the advisor/broker make more money by suggesting B class shares
> vs. A class shares? If the advisor does make money from the 12b-1 and
> B class, does he make money anywhere else?
>
> Would an advisor tell me to go to hell if I instructed him to buy A
> class shares with little or no 12b-1 fees?

An advisor on another board said that class B shares were the most
lucrative.
If an advisor told you to go to hell you should fire him or her, they are
working for you.

If you are comfortable with oing it yourself then you should. I never could
understand why anyone would buy funds through an advisor anyway. Advisors
have their place, if you need an overall plan, a financial plan, you get an
advisor. You don't need one to pick mutual funds.

Re: Financial Advisor Question

watch TV? if so, it's hard to escape the ad where the guy is sending
kids to college, the guys business almost failed, the guys dick almost
fell off, but everything was saved by hard working advisor, best buddy.
now don't come back and say that TV advertising is lies or brokers
overcharge----live the fantasy!

Re: Financial Advisor Question

"mac" <> wrote

> watch TV? if so, it's hard to escape the ad where the guy is sending
> kids to college, the guys business almost failed, the guys dick almost
> fell off, but everything was saved by hard working advisor, best buddy.
> now don't come back and say that TV advertising is lies or brokers
> overcharge----live the fantasy!

Good morning. I think those ads are funny.
"It wasn't always like this".

My favorite is the one about the guy that has a fancy house, exclusive golf
club membership, etc., and he's riding his lawnmower and say "you want to
know how I do it, I'm up to my neck in debt, please help me". Cracks me up.

Re: Financial Advisor Question

Buy Bogles book "Bogle on Mutual Funds". Read it. Then go to
www.vanguard.com and open an account with $3000. Copy all your mutual
fund statements, send them to Vanguard and tell them to transfer the
money. Now enjoy a good mutual fund company that keeps expenses low,
has great online service (I don't even need to talk to an account guy
to withdraw, transfer, add to or even close out). Discover what it
feels like to work with a mutual fund that recognizes it's YOUR money.
No one really knows what the future is with the market and funds, but
at least you wont be charged an arm and a leg by someone who doesn't
know either, but charges you for his advice anyway.

Re: Financial Advisor Question

Ed wrote:
> If you are comfortable with oing it yourself then you should. I never could
> understand why anyone would buy funds through an advisor anyway. Advisors
> have their place, if you need an overall plan, a financial plan, you get an
> advisor. You don't need one to pick mutual funds.


I called to make my first appointment with an investment advisor
working at a bank. I had read something and was tentative about an
interest I had in Emerald Funds the bank held. I expectantly waited at
the desk at the appointed time, preparing for what I imagined as a
"sell" that would go down -- that someone informed and skillful could
lead me along into what I should persue. The representative then came
in and sat down. She gave me a group of briefs, condensed phamplets
hardly more than the abovementioned blurb I'd read from Money Matters,
or whatever else it was I had read in a grocery checkout line. She
didn't say much about the phamplets, which I found embarrassing, in
seeming to pre-emptively dismiss them as quickly as she proceeded to
dismiss me. What she did mention, however, just as my butt was to hit
the door on the fast way out, I'll never forget. Best advice anyone
could have given me. She wanted me to know that which neither of us
knew when she distinctly phrased, "You did your research,"
ambiguously so, in order to be either a question or affirmation, I
ought determine.

Re: Financial Advisor Question

wrote:
> I have been using a financial advisor for several years for help in
> choosing mutual funds.

> I own about 7 different funds and each one are B class shares and
> carry a 1% 12b-1 fee.
>
> The advisor/broker makes money from the 12b-1 fee, correct? I
> understand the front vs. back end load for A and B class shares, but
> does the advisor/broker make more money by suggesting B class shares
> vs. A class shares? If the advisor does make money from the 12b-1 and
> B class, does he make money anywhere else?

www.morningstar.com or any prospectus can show you the total cost of
ownership over various holding periods, and they're usually about the
same. But in rising markets I'd expect B shares to cost more because
the commission is based on the share price, while in falling markets
this should make them cheaper. After about five years of ownership, B
shares automatically turn into A shares and their expense ratios drop
(no front load is paid for the conversion).

> Would an advisor tell me to go to hell if I instructed him to buy A
> class shares with little or no 12b-1 fees?

I don't think so because the total commissions are designed to be about
the same. BTW even A shares have 12b-1 fees, only lower ones. But why
buy A or B shares when you can most likely buy no-load shares from
another company for funds that are very similar? Morningstar shows
most-similar funds (may be extra-cost online, free at your local
library).

Is this advisor's expertise worth so much that you don't want to offend
him?

Re: Financial Advisor Question

larry moe 'n curly wrote:

> www.morningstar.com or any prospectus can show you the total cost of
> ownership over various holding periods, and they're usually about the
> same. But in rising markets I'd expect B shares to cost more because
> the commission is based on the share price, while in falling markets
> this should make them cheaper. After about five years of ownership, B
> shares automatically turn into A shares and their expense ratios drop
> (no front load is paid for the conversion).
>
> > Would an advisor tell me to go to hell if I instructed him to buy A
> > class shares with little or no 12b-1 fees?
>
> I don't think so because the total commissions are designed to be about
> the same. BTW even A shares have 12b-1 fees, only lower ones. But why
> buy A or B shares when you can most likely buy no-load shares from
> another company for funds that are very similar? Morningstar shows
> most-similar funds (may be extra-cost online, free at your local
> library).
>
> Is this advisor's expertise worth so much that you don't want to offend
> him?

I looked at some cost figures for A and B shares and even ran some
numbers in Excel and it does appear that they are about the same. If
the costs are nearly the same, what's the idea behind the B class
shares?

I have looked at some no load funds, but I haven't found many with
decent returns.

I guess I do value this guy's expertise. I've picked my funds for my
401k plans and he's picked them for my IRAs, and even though I'm an
engineer with decent research and analytical skills, his picks
consistently have at least twice the returns of mine.

Re: Financial Advisor Question

<> wrote in message
news:

>
> I looked at some cost figures for A and B shares and even ran some
> numbers in Excel and it does appear that they are about the same. If
> the costs are nearly the same, what's the idea behind the B class
> shares?
>

B shares are nicknamed "bendover shares"

> I have looked at some no load funds, but I haven't found many with
> decent returns.
>

Click away here.


> I guess I do value this guy's expertise. I've picked my funds for my
> 401k plans and he's picked them for my IRAs, and even though I'm an
> engineer with decent research and analytical skills, his picks
> consistently have at least twice the returns of mine.
>

Re: Financial Advisor Question

<> wrote

> I guess I do value this guy's expertise. I've picked my funds for my
> 401k plans and he's picked them for my IRAs, and even though I'm an
> engineer with decent research and analytical skills, his picks
> consistently have at least twice the returns of mine.

Which funds did he pick for you?

Re: Financial Advisor Question

Pardon my ignorance, but can you explain why B shares are "bendover
shares"? I realize that B shares have a slightly less return than A
shares, but they seem to make up the difference since they have a
higher initial investment due to the lack of a front end load. I've
looked at 10 year cost projections for A and B shares, and they are
very close. I also ran some numbers in Excel factoring in the lower
return and higher initial investment of of B shares, and they indicated
roughly the same investment growth by the 6-7 year mark---which is when
the B shares convert to A shares. Am I missing something?

To answer Ed's question from another post, the funds my advisor
suggested came from the American, Fidelity, Fidelity Advisor, AIM, and
Davis fund families.

Re: Financial Advisor Question

<> wrote

> To answer Ed's question from another post, the funds my advisor
> suggested came from the American, Fidelity, Fidelity Advisor, AIM, and
> Davis fund families.

That's not an answer, these aren't funds, they are fund companies.
Skip it.

Re: Financial Advisor Question

<> wrote in message
news:

> Pardon my ignorance, but can you explain why B shares are "bendover
> shares"?

Because, if you're *put* into a poor performing fund, you still have to pay
the back-end fee to sell, after already losing money. Simple economics.

> I realize that B shares have a slightly less return than A
> shares, but they seem to make up the difference since they have a
> higher initial investment due to the lack of a front end load. I've
> looked at 10 year cost projections for A and B shares, and they are
> very close. I also ran some numbers in Excel factoring in the lower
> return and higher initial investment of of B shares, and they indicated
> roughly the same investment growth by the 6-7 year mark---which is when
> the B shares convert to A shares. Am I missing something?
>

But what if the fund doesn't perform during the 6-7 years of holding?

Just looking at some familes, that you mentioned below, let's see.
AIM Blue Chip CL B ABCBX (that sounds like a nice fund)
In 5 years it has lost -8.53%. Sell today? You lose more than 8.53%

No, no, don't sell ... it will come around, your broker says.
Why not sell? Because you are paying 2.12% in annual expenses.

American is a fine fund family, been around for YEARS he tells you.

American Growth Fund of America CL B (AGRBX) has a fine track record.
Started in 1973 and since then averaged a 15.31% Average Annual Compound
Returns.
He shows you that $10,000 invested in January in 1995 is now worth more than
$40,000!
What bank is going to do THAT for you? THAT'S 400% my good man!

Trouble is, it too has lost money. Lost in the last 5 years and
you would have lost more by selling with the back end fees.

Wall street doesn't want you to sell. Commissions can be as low as $4.
What they want is you to BUY n HOLD funds. Hold 'em all your life,
so families like American can charge you $987 on $10,000 invested
in the last 5 years.


(Gee whiz, he said the annual fees were only 1.5%. That looks like 9.87%)

Oh, don't want to GIVE them $987 AND lose money AND pay the back end fee?
BEND OVER BUDDY!!!

As our friend Rono states: "This aint rocket science"
Get yourself a brokerage account with somebody that doesn't charge you till
death.
Find yourself some "no load", "no transaction fee" mutual funds that they
offer and
research them.

> To answer Ed's question from another post, the funds my advisor
> suggested came from the American, Fidelity, Fidelity Advisor, AIM, and
> Davis fund families.
>

Ed asked, which "funds".
Some, err I should say, a few load funds actually are VERY fine.
Smith Barney's Richard Freeman is an example.

Re: Financial Advisor Question

"Gary C" <> wrote

> Ed asked, which "funds".
> Some, err I should say, a few load funds actually are VERY fine.
> Smith Barney's Richard Freeman is an example.

I was interested because of the fee structure mostly and to see if there
were better no-load alternatives.

Example:
Fidelity Advisor Value B vs Fidelity Value.
Annual expenses: 2.23%/0.93%
CDSC: 5%/0%
Manager: Richard Fentin/Richard Fentin
Top 10 holdings, just about the same.
YTD performance 8/31: 7.74%/8.98%
1 year performance: 23.98%/26.45%

Looks like the cheaper fund is the better of the two.

Re: Financial Advisor Question

wrote:
> larry moe 'n curly wrote:

> > they're usually about the same. But in rising markets
> > I'd expect B shares to cost more because the commission
> > is based on the share price, while in falling markets
> > this should make them cheaper. After about five years of
> > ownership, B shares automatically turn into A shares and
> > their expense ratios drop (no front load is paid for the
> > conversion).

> I looked at some cost figures for A and B shares and even ran some
> numbers in Excel and it does appear that they are about the same. If
> the costs are nearly the same, what's the idea behind the B class
> shares?

I read that they were introduced a few decades ago, when no-load funds
were becoming much more popular and were cutting into the load fund
business. So the load fund people introduced B shares to fool
investors into thinking that their advisors offered no-load funds, but
that practice was soon outlawed (but not necessarily stopped).

> I guess I do value this guy's expertise. I've picked my funds for my
> 401k plans and he's picked them for my IRAs, and even though I'm an
> engineer with decent research and analytical skills, his picks
> consistently have at least twice the returns of mine.

What funds have you picked, and what funds has he picked, and why?

Re: Financial Advisor Question

Gary C wrote:
>
> <> wrote in message
> news:
>
> > Pardon my ignorance, but can you explain why B shares are "bendover
> > shares"?
>
> Because, if you're *put* into a poor performing fund, you still have to
> pay the back-end fee to sell, after already losing money. Simple
> economics.

That's no different from A shares - either way the load is a "sunk
cost", it is just that with B shares, you either pay it over time, or
pay it when you get sell (sort of like paying off a mortgage), rather
than paying it up front.

> > [...]
> But what if the fund doesn't perform during the 6-7 years of holding?

Then you can exchange into another fund in the same family, and carry
over the credit for the number of years already in the fund (e.g. if
you've been in for 5 years, and the shares convert after 7, then they'll
convert after 2 years in the new fund). Let's take your example:

> Just looking at some familes, that you mentioned below, let's see.
> AIM Blue Chip CL B ABCBX (that sounds like a nice fund)
> In 5 years it has lost -8.53%. Sell today? You lose more than 8.53%

So you look around for a reasonable fund to switch to, and find AIM
Capital Development ACDBX, still a growth fund, though smaller cap, and
a moderately decent fund. (AIM hasn't been impressive for years;
"decent" is about the best one can do.)

Still, the load is a sunk cost - whether you pay it with a couple more
years of extra 12b-1 fees (in any AIM fund), or via a redemption fee,
that money is gone. No different from Class A shares. So the real
question is whether you can find another AIM fund you like (which you
can switch to without paying a second load), or whether AIM is so bad
you want out altogether.

> [...]
> American is a fine fund family, been around for YEARS he tells you.
>
> American Growth Fund of America CL B (AGRBX) has a fine track record.
> Started in 1973 and since then averaged a 15.31% Average Annual
> Compound Returns.

Actually, Growth Fund of America was launched 1/1/1959; it just switched
management companies (to Capital Research and Management, aka American
Funds) in 1973. (See footnote 1 in prospectus, p. 4, pdf p 8:
). And Class B of
American Growth Fund of America (AGRBX) has only been around since March
15, 2000.

But your point is still well taken - this is a fine fund. And one which
has bested 92% of its peers over the past 5 years. Odds are very good
that the advisor wouldn't have picked a better fund in its category,
load or no load, if he had been told not to go with American Funds.

> Wall street doesn't want you to sell. Commissions can be as low as $4.
> What they want is you to BUY n HOLD funds. Hold 'em all your life,
> so families like American can charge you $987 on $10,000 invested
> in the last 5 years.
>

The amount charged would be $787 (unless you sold) only if the fund had
gone up 5%/year in value; since it didn't - it even went down - the
amount charged was less. If you were to redeem, and pay the CDSC:
a) You wait 1 day, so that you are in the sixth year instead of the
fifth, this reduces the fee from 2% to 1%; and
b) You pay a percentage of the current value, not the purchase price,
because the current value is less (so you don't pay a full $100).

Of whatever money you do wind up paying in fees for this five year
investment, the majority is for the load, i.e. the fee that your advisor
receives. Advice doesn't come for free (except here :-).

> [...]
> As our friend Rono states: "This aint rocket science"
> Get yourself a brokerage account with somebody that doesn't charge you
> till death.

Once the Growth Fund of America shares convert, they'll cost less than
the vast majority of other funds, and you'll start making up the load
(though it could take the rest of your life). And there are equally
fine no load funds that are still cheaper (e.g. Vanguard).

> Find yourself some "no load", "no transaction fee" mutual funds that
> they offer and research them.

"No-fee supermarkets charge fund families for participating, and much of
that cost is passed along to investors by the fund families in the form
of higher expenses. ... Funds offered with transaction fees often have
lower charges because the fund companies aren't paying the supermarket
for shelf space."
WSJ, via AP, July 2005:


The OP mentioned Davis funds. There's a good example. You can buy the
Davis funds:
New York Venture (NYVTX) 0.89% expense ratio, including 0.25% 12b-1 fee
Selected American (SLASX) 0.92% expense ratio, including 0.25% 12b-1
Selected American (SLADX) 0.55% expense ratio, no 12b-1 fee

The latter two are two share classes of the same fund, the first is a
nearly equivalent fund with the same managers, sold with a load. The
middle one is NTF, but you still pay for the transaction in the form of
higher expenses.

If what you want is cheap, buy low cost, no load funds directly from the
fund company. If what you want is convenience, buy no load funds
through brokers. If what you want is advice, load funds are a way of
paying for that. A shares or B shares, your return will be about the
same.

IMHO, there are two issues with B shares:

1) Naive investors think they are not paying a load, because it gets
skimmed over time in the form of increased expenses. As the OP noted,
and I have reiterated here, the net returns are about the same, whether
one pays a front end load, a load in the form of increased expenses, or
a load in the form of a deferred sales charge.

2) Brokers have abused B shares by selling them to investors when A
shares really would be cheaper (the loads on A shares typically are
reduced if you invest a lot of money in the fund; this makes them
cheaper than B shares). This selling is illegal(?), and brokers should
be strung up for this. B share pricing invites this abuse, but it still
takes unscrupulous/incompetent brokers to accept the invitation.

If you buy directly from a fund family, it will not sell you B shares if
you are buying enough to get the A shares cheaper.

--
Mark Freeland

Re: Financial Advisor Question

Thanks for the help everyone. The ones who answered the question asked
were especially helpful but I learned stuff from the others as well.

For those who inquired about what funds I hold, maybe another time.
This post was to help me understand fund classes and how advisors are
compensated, not about getting anonymous feedback about my mutual fund
holdings.

Thanks again.


larry moe 'n curly wrote:
> wrote:
> > larry moe 'n curly wrote:
>
> > > they're usually about the same. But in rising markets
> > > I'd expect B shares to cost more because the commission
> > > is based on the share price, while in falling markets
> > > this should make them cheaper. After about five years of
> > > ownership, B shares automatically turn into A shares and
> > > their expense ratios drop (no front load is paid for the
> > > conversion).
>
> > I looked at some cost figures for A and B shares and even ran some
> > numbers in Excel and it does appear that they are about the same. If
> > the costs are nearly the same, what's the idea behind the B class
> > shares?
>
> I read that they were introduced a few decades ago, when no-load funds
> were becoming much more popular and were cutting into the load fund
> business. So the load fund people introduced B shares to fool
> investors into thinking that their advisors offered no-load funds, but
> that practice was soon outlawed (but not necessarily stopped).
>
> > I guess I do value this guy's expertise. I've picked my funds for my
> > 401k plans and he's picked them for my IRAs, and even though I'm an
> > engineer with decent research and analytical skills, his picks
> > consistently have at least twice the returns of mine.
>
> What funds have you picked, and what funds has he picked, and why?

Re: Financial Advisor Question

<> wrote

> For those who inquired about what funds I hold, maybe another time.

Nobody really cares.

> This post was to help me understand fund classes and how advisors are
> compensated, not about getting anonymous feedback about my mutual fund
> holdings.

The objective was to see if there were better and cheaper alternatives. ALL
of the feedback that you got was anonymous and may be accurate or not. You
should always be skeptical of Elle.

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