Quote:
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
|
Thankfully, people have caught on to the problem of fees and commissions and the types of mutual funds about which you asked are falling by the wayside. It makes little sense to pay an advisor an annual fee of 1% to have him sell you an "actively managed fund which pays the advisor a commission and then charges you an annual fee of, perhaps, 1% of the value of your account or 2+% of the annual gain in the account.
Aside from the fees and commissions, a problem with these funds is that your advisor will be reluctant to move your money from the fund to another which is performing better. At the minimum, an advisor who moves his client from fund to fund is not going to be treated well by the first fund which paid him a commission.
Fortunately, the industry developed "index" funds which you can buy and sell like a stock for no commission. The index might be the general market--the Dow or the S&P 500, or it might be a particular industry, country, or region. If you worked in a particular industry, you might consider an index focused on that industry(oil? transportation? airlines?).
You'll probably be best off putting your money in the S&P 500 or Nasdaq with some in Warren Buffett's Berkshire-Hathaway.
The smart play is to move your accounts to Charles Schwab. It's advisors are as good as any other brokerage's, they are paid a salary and take no commissions, and you can trade at no cost--that's a big contrast to when I started investing in the 60's when commissions took a big chunk out of any gains or made a loss even worse. In addition, you get free checking (including the checks) and a debit card which refunds your ATM fees world-wide.
,