[spinner1001]

Originally Posted by Boomer

Hi, spinner1001,

Thank you for your contributions to this thread in posts #13, #16 and #19. (And you sure are right about that number #19 one-liner.)

Your posts are right about many things. Although I know the drill at Fidelity, as far as access goes, I will never reveal whether I have been invited to meet with someone on the top floor in those offices with that spectacular view of the city.

Even so, I really do appreciate your explanation of how Fidelity works because you are educating readers who take the time to see what you have to say.

Everything (almost) that you are saying here is a valuable part of the educational process that I am seeing develop in this thread. Seriously, I thank you.

But I am not sure why you are (kind of) coming at me in Post #17. . .I think I actually know why. It’s because you are not reading me — not on the page nor in-between the lines.

You do not have to read what I write. There will not be a quiz. But I wish you would have read me better if you wanted to criticize what I was saying. I have been at this for 30 years and I really, truly was “asking for a friend” who wanted me to look at the report she had received from her advisor.

I was not familiar with such an elaborate report, but I did a little recon where I could and saw some things I would question — although everything I saw was perfectly legal.

Anyway, we know nothing about each other, but I can see that you know some things about advisors and incentives. Thank you.

I am loving how generally educational this thread is turning out to be. Of course, I saw from someone here that old “why not ask the advisor” platitudinous, predictable line from one who cannot possibly have read the thread but cannot resist taking a shot. I can ignore that kind of shot. But although you took a sort of shot, I am very glad you are here in this thread helping to educate readers.

Boomer (who is no eejit and really is “asking for a friend)

I suppose it was the ‘asking for a friend’ part and trying to focus the thinking, not personal criticism.

[Caymus]

Originally Posted by retiredguy123

Vanguard mutual funds and ETFs are both extremely inexpensive, not large loading. I prefer the mutual funds to the ETFs because of the tax efficiency that they offer. Most people who buy mutual funds are "buy and hold" investors, so they are not trading on a daily basis, like ETF investors. This provides a more predictable investment environment that stabilizes the tax liability.

I thought that ETFs are more tax efficient. They only trade when the underlining companies are added/deleted from an index. Most conventional mutual funds trade more frequently which result in declaring larger annual (forced) capital gains.

[spinner1001]

Originally Posted by retiredguy123

Vanguard mutual funds and ETFs are both extremely inexpensive, not large loading. I prefer the mutual funds to the ETFs because of the tax efficiency that they offer. Most people who buy mutual funds are "buy and hold" investors, so they are not trading on a daily basis, like ETF investors. This provides a more predictable investment environment that stabilizes the tax liability.

Actively-managed non-index mutual funds (e.g., a Health Care mutual fund) are often LESS tax efficient for individual investors than a matching ETF. (Unlike, say, a passive S&P 500 index mutual fund.)

Managers of actively-managed non-index _mutual funds_ generally trade in and out and fund investors can get big taxable capital gain distributions from the mutual fund especially in a rising market even when they are buy-and-hold fund investors. Capital gains from _manager_ trading of a mutual fund get passed along to fund investors even when an investor has not sold their fund holding.

This tax treatment generally differs from comparable ETFs as ETF investors see the capital gains when they (not the fund managers) sell.

[retiredguy123]

Originally Posted by Caymus

I thought that ETFs are more tax efficient. They only trade when the underlining companies are added/deleted from an index. Most conventional mutual funds trade more frequently which result in declaring larger annual (forced) capital gains.

ETF managers are forced to sell shares to raise cash when a lot of investors sell their shares. This creates a taxable event.

Without doing the research, I'm really not sure which is more tax efficient. But, my thinking is that a fund manager is forced to sell stocks to raise cash when a lot of investors sell their shares. This creates a taxable event for all shareholders. People who buy ETFs are more likely than mutual fund investors to buy and sell shares frequently, thereby creating more potential for taxable events.

Several years ago, I compared the tax efficiency of the Vanguard S&P 500 index fund to the Fidelity S&P 500 index fund and found that the Vanguard fund was significantly more tax efficient. I attributed that to Vanguard having more buy and hold investors than Fidelity.

[manaboutown]

ETF versus Mutual Fund Taxes - Fidelity

[retiredguy123]

Originally Posted by spinner1001

Actively-managed non-index mutual funds (e.g., a Health Care mutual fund) are often LESS tax efficient for individual investors than a matching ETF. (Unlike, say, a passive S&P 500 index mutual fund.)

Managers of actively-managed non-index _mutual funds_ generally trade in and out and fund investors can get big taxable capital gain distributions from the mutual fund especially in a rising market even when they are buy-and-hold fund investors. Capital gains from _manager_ trading of a mutual fund get passed along to fund investors even when an investor has not sold their fund holding.

This tax treatment generally differs from comparable ETFs as ETF investors see the capital gains when they (not the fund managers) sell.

Thanks. I neglected to say that I never invest in actively managed, non-index funds. I only invest in index funds, and I am mostly a buy and hold investor. I am just not interested in paying extra fees to a stock picker who manages a stock or bond fund.

[spinner1001]

Originally Posted by retiredguy123

ETF managers are forced to sell shares to raise cash when a lot of investors sell their shares. This creates a taxable event.

Generally, this is not true. ETFs generally have beneficial tax rules eliminating or reducing capital gains in a sell-off. Details get technical.

Also, ETF investors are buying and selling from each other on a stock exchange. If A is selling 100 ETF shares, the buyer is almost certainly another investor, and not the ETF manager.

[retiredguy123]

Originally Posted by spinner1001

Generally, this is not true. ETFs generally have beneficial tax rules eliminating or reducing capital gains in a sell-off. Details get technical.

Also, ETF investors are buying and selling from each other on a stock exchange. If A is selling 100 ETF shares, the buyer is almost certainly another investor, and not the ETF manager.

I agree, except that there are times when there is a large stock sell-off. In those cases, the ETF manager will be forced to sell stocks to raise cash. My only point is that investors in indexed mutual funds tend to be less inclined to participate in a sell-off. I looked at converting my Vanguard index funds to ETFs, but I did not see a significant advantage to doing so. The expense ratios for both investments are extremely low.

[spinner1001]

Originally Posted by retiredguy123

I looked at converting my Vanguard index funds to ETFs, but I did not see a significant advantage to doing so. The expense ratios for both investments are extremely low.

And you may have triggered capital gains taxes for yourself by selling your Vanguard index funds in converting.

Moral of the story for all of this -- it's complicated.

[Boomer]

I had never heard of trailer fees, incentives paid by some mutual funds to some advisors.

Boomer

[Boomer]

I opened this thread a week ago because a friend asked me to look at a report from her advisor. She is with an advisor who gets a percentage of Assets Under Management. That number is perfectly clear. But when I looked at the report, I became curious as to what kinds of fees were enshrined inside all those mutual funds, which led me to wonder what is the real cost to her of doing business.

Thank you to those who have participated in this thread by offering good information. I was going to start another thread this morning with a specific question that I know somebody here will be able to answer, but I decided to just add the question here.......

The report I am looking at lists the top ten holdings, along with a lot of other funds. I would like to have a clear picture of what those holdings entail -- at least the top ten -- for a start. I was able to find part of the info on Fidelity -- even though these are not Fidelity funds.

I then went to investor.gov which sent me to FINRA. After skimming through page after page of instructions on the FINRA site, I began to feel like my head was being pinched in a vise and I concluded this site must be designed for those who have a bunch of those money-handler designations after their names. Anyway, mere bumpkin that I am, I soon lost interest in continuing my quest for more info on these funds by using FINRA.

Sooooo, to make my long story longer, I am finally getting to my question of the day:

I am going to look at subscribing to Morningstar. I saw that they have a free 7-day opportunity. I do not want to spring for a whole year, but I think I saw there might be a monthly option that could give me time to get all my deciphering of these funds done if 7 days is not enough.

Is Morningstar easier to use than the FINRA fund analyzer?

Boomer

(This quandary of mine is exactly why I stick to individual div stocks, cash and a few index funds that do not seem to cost much. But here I am trying to figure out if my friend is being treated fairly. Is she paying a helluva lot more than she thinks she is with just that AUM percentage? Front loads? Back Loads? Trailer Fees? Expense Ratios? Turnover Rates? And probably a few other things buried in those funds? AAAAAAAUGH!!!!!)

[manaboutown]

After a one shot internet search of "How do I find what is in a mutual fund's portfolio?" all I came up with that might be easy to use is Morningstar. I use yahoo finance for quotes and to follow stocks and ETFs. It lists the composition of the Vanguard and Schwab index ETFs. I do not know if it follows the composition of mutual funds that actively trade.

This is likely what you have yourself already discovered from Morningstar:

"How do I find a fund's holdings?

You can go to Fund Quote page and then click on Portfolio tab from where you can see the the holdings."

[Caymus]

Originally Posted by Boomer

I opened this thread a week ago because a friend asked me to look at a report from her advisor. She is with an advisor who gets a percentage of Assets Under Management. That number is perfectly clear. But when I looked at the report, I became curious as to what kinds of fees were enshrined inside all those mutual funds, which led me to wonder what is the real cost to her of doing business.

Thank you to those who have participated in this thread by offering good information. I was going to start another thread this morning with a specific question that I know somebody here will be able to answer, but I decided to just add the question here.......

The report I am looking at lists the top ten holdings, along with a lot of other funds. I would like to have a clear picture of what those holdings entail -- at least the top ten -- for a start. I was able to find part of the info on Fidelity -- even though these are not Fidelity funds.

I then went to investor.gov which sent me to FINRA. After skimming through page after page of instructions on the FINRA site, I began to feel like my head was being pinched in a vise and I concluded this site must be designed for those who have a bunch of those money-handler designations after their names. Anyway, mere bumpkin that I am, I soon lost interest in continuing my quest for more info on these funds by using FINRA.

Sooooo, to make my long story longer, I am finally getting to my question of the day:

I am going to look at subscribing to Morningstar. I saw that they have a free 7-day opportunity. I do not want to spring for a whole year, but I think I saw there might be a monthly option that could give me time to get all my deciphering of these funds done if 7 days is not enough.

Is Morningstar easier to use than the FINRA fund analyzer?

Boomer

(This quandary of mine is exactly why I stick to individual div stocks, cash and a few index funds that do not seem to cost much. But here I am trying to figure out if my friend is being treated fairly. Is she paying a helluva lot more than she thinks she is with just that AUM percentage? Front loads? Back Loads? Trailer Fees? Expense Ratios? Turnover Rates? And probably a few other things buried in those funds? AAAAAAAUGH!!!!!)

You can find the top 10 holdings of a fund numerous places. I usually find them in the research sections of Schwab by typing in the symbol and selecting the "holdings" tab. If I don't feel like logging into Schwab, I use Yahoo Finance for the same info. Sometimes the list of holdings can be impacted by a manager's use of "window dressing".

At one time I used the free section of Morningstar to track ex dividend dates. Now I use other free sites.

[Charley's Dad]

Boomer, we work with Fross & Fross Wealth Management and they said that If your working with a Fiduciary like them (and why wouldn't you be?) that charges a fee for service then they can't "double dip" and also receive a load or a commission. I hope that helps.

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

[Boomer]

Thanks, manaboutown and Caymus,

I have the top ten holdings of funds in my friend's advisor's report, but I want to take a scalpel to those to dissect them for as much as I can find out about the fees. An earlier search gave me only partial information for some and others I could not find at all. I probably didn't try hard enough.

I have done this throughout the years -- for my own info as manager of the Boomer Fund -- by using those sources you mentioned, but I will take another look. (I used to sometimes copy Will Danoff's homework by looking at Contrafund's top ten holdings.)

I must sound like a woman obsessed. I have to find out what's inside those mutual funds in fees. The AUM is the easy part. But are the internal fees fair fees? I also wonder if incentives come in other forms, not exactly commissions.

Maybe I should take up crafts or day-drinkin' instead of delving into mutual fund costs............yeah, right, like that's gonna happen.

Boomer