[Augdog]

Originally Posted by Boomer

I have never bought a mutual fund through an advisor. (I buy them but without an advisor in the middle.)

I know that financial advisors often get paid a 1% annual fee of assets under management, which may vary to a lesser percentage on AUM over a certain amount. This part of advisory fees is clear to me…..

But here’s my question: On top of that fee for AUM, do financial advisors also get paid by the mutual funds they sell? Loads seem obvious to me, but what about those other costs and fees that show up inside mutual funds? Does the advisor get a piece of that action, too?

(I tried to learn about this on the FINRA site which has a section that is supposed to help, but I did not get very far.)

If the advisor is being paid by the funds in addition to being paid by the client, should the advisor report that amount to the client to give a clearer picture of the client’s cost of doing business?

I hope someone knowledgeable here will take pity on me and give me the Cliffs Notes answer to my confusion on this. (So far, no advisor for me, but I am thinking, “What if?”)

In other words, in the world of financial advisors, is there icing on that cake that is the fee quoted for AUM? And, if so, where is it in the mutual funds and/or ETFs?

Boomer

First Im not a financial advisor but have worked in the industry for a long time. Read a book titled The Simple Path to Wealth by JL Collins. It’s an easy read and puts the concept of why load funds and high expense fees will hurt your long term returns on investments. Keeping it simple by investing in Index Funds( my favorite is the Sand P 500) can offer you great diversification and the chance to keep your money invested instead of paying out some extra fees. Many large national brokerage firms can offer you these index funds with very low expenses tied to them. I also like the idea that the low turnover rate of buying and selling stocks in an index can be efficient for tax purposes. An advisor can help you decide how much should be stock index funds and how much in fixed income allocations but to me that doesn’t justify the high fees I see in many cases. Enjoy that savings on you or your family. It’s really worth your time to have some understanding of where your money is being invested and knowing that historically low fees generally will equate to better returns. It’s a reason so many load funds and high fees have been going away. Thanks a lot to John Bogle the founder of Vanguard.