Advantages of Loaded Funds?

Discussion in 'Financial Planning' started by Jay, Jan 6, 2004.

  1. Jay

    Jay Guest

    I am pretty sure that most people here favor no-load funds (for know
    reasons). But, since the loaded ones still exist (class A,B,C etc.) there
    has to be some advantages (apart from commissions to the Financial Advisors
    and party). Any insight?
     
    Jay, Jan 6, 2004
    #1
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  2. In article <rWFKb.4602$>, Jay
    <> wrote:

    > I am pretty sure that most people here favor no-load funds (for know
    > reasons). But, since the loaded ones still exist (class A,B,C etc.) there
    > has to be some advantages (apart from commissions to the Financial Advisors
    > and party). Any insight?


    Yes...it is highly advantageous to those who are selling the loaded
    funds. They push them like used car salesmen push used taxi cabs.\
    There is no big commission for selling no-load funds, so nobody is
    out there doing the high pressure sale for no-load funds.

    A second reason is many folks are caught in a captive situation,
    such as a 401K plan that only offers loaded funds. In this case,
    they really don't have a choice (other than to change jobs, something
    that is relatively difficult given the economic downturn we are in).

    Some folks think that actively managed funds with high fees must
    do better than lower cost fees. Studies have not found that high
    loads mean better returns, in fact, just the opposite is often true.

    -john-

    --
    ====================================================================
    John A. Weeks III 952-432-2708
    Newave Communications http://www.johnweeks.com
    ====================================================================
     
    John A. Weeks III, Jan 6, 2004
    #2
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  3. "Jay" <> wrote in message
    news:rWFKb.4602$...
    > I am pretty sure that most people here favor no-load funds (for know
    > reasons). But, since the loaded ones still exist (class A,B,C etc.) there
    > has to be some advantages (apart from commissions to the Financial

    Advisors
    > and party). Any insight?


    "Somebody has to pay someone, something, someday." - Burt Meisel, CLU

    There Ain't No Such Thing As A Free Lunch (TANSTAAFL).

    I sold mutual funds with sales charges for a decade. I switched to fees for
    the investment business, but not because I think sales charges are bad. Far
    from that, I think they are an effective compensation system for accounts
    with less than $1 million, especially for accounts with less than $250,000.
    For accounts less than $100,000, in middle to lower income markets, where
    fees aren't generally going to be deductible, they make a lot of sense when
    help or advice is needed (and there remains a near total lack of available
    fee-based advice in this market). Sales charges compensate the distributor
    for doing their job, whether that is creating demand where there is none,
    educating investors who need it, and, perhaps, but not always, some
    financial planning, that is incidental to the sale of the fund.

    For investors with more than $500,000, but less than $1,000,000, its six on
    one side, half-dozen on the other. Above $1,000,000, fee-based advice wins
    hands down, where service is going to be an ongoing requirement. Why? No
    sales charges on purchases of $1,000,000, or when aggregate purchases reach
    that level. A 25 basis point trail is too small to be profitable (there
    aren't any reputable firms that charge anywhere near that low), so fees make
    a lot more sense at this level.

    Remember, more than HALF of mutual fund assets are distributed via
    Registered Representatives (RR) through the Broker/Dealer (B/D) channel.
    Imagine what would happen to the stock market if these RRs didn't create
    demand? The market would head South, guaranteed. People don't automatically
    invest in the stock market. As a rule, they never have.

    FWIW, I still use many of the same fund families, just different share
    classes. The difference between sales charges and fees, at the most
    fundamental level, is that I determine what I want to charge, while sales
    charges are dictated by the fund (and limited by the law).

    Brent D. Gardner, ChFC
    Chartered Financial Consultant
    http://members.cox.net/brentdgardner1378/

    "Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
    to heaven if you die dumb. Become better informed. Learn from other's
    mistakes. You could not live long enough to make them all yourself." - Hyman
    George Rickover (1900-86), Admiral, US Navy, advocated development of
    nuclear subs & ships

    The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
    (ChFC), designations owned and exclusively offered by The American College,
    signify the highest standards of academic study and professional excellence
    in the financial services industry.
     
    Brent D. Gardner, ChFC, Jan 6, 2004
    #3
  4. Jay <> wrote:

    > I am pretty sure that most people here favor no-load funds
    > (for know reasons). But, since the loaded ones still exist
    > (class A,B,C etc.) there has to be some advantages (apart from
    > commissions to the Financial Advisors and party). Any insight?


    There could be an advantage in that the load discourages rapid
    turnover or trading of fund shares. Some of the ramifications of
    this are:

    1) The fund saves costs by way of less trading to raise cash to
    payoff departing shareholders.

    2) A "spendthrift" investor might be more inclined to stick with
    the fund long term, so as not to "lose" the load, and thereby
    might ultimately benefit.

    Whether these benefits out weigh the costs when compared to
    no-load funds is, of course, a matter of speculation, conjecture
    and debate. I'll just say that I am willing to keep an open mind
    on the issue, especially when the second item mentioned above
    applies.

    MTW
     
    Michael T Wing CPA, Jan 6, 2004
    #4
  5. > There could be an advantage in that the load discourages rapid
    > turnover or trading of fund shares. Some of the ramifications of
    > this are:


    I just got a notice from AIM that they are limiting trades in
    and out of fund to some small number of times per year. This
    was done with a rule change in the fund. Based on this, I'd say
    that having a load may discourage trading, but it isn't the only
    way of doing it.

    > 2) A "spendthrift" investor might be more inclined to stick with
    > the fund long term, so as not to "lose" the load, and thereby
    > might ultimately benefit.


    But this might also have the opposite effect, and keep someone
    in a fund that is tanking long after they should have left.

    -john-

    --
    ====================================================================
    John A. Weeks III 952-432-2708
    Newave Communications http://www.johnweeks.com
    ====================================================================
     
    John A. Weeks III, Jan 7, 2004
    #5
  6. "Jay" <> wrote in message
    news:rWFKb.4602$...
    > I am pretty sure that most people here favor no-load funds (for know
    > reasons). But, since the loaded ones still exist (class A,B,C etc.) there
    > has to be some advantages (apart from commissions to the Financial

    Advisors
    > and party). Any insight?
    >


    If you look closely you will see that for most fund groups the loaded funds
    have lower expenses that they no load funds. In some cases, depending on
    how long you hold the Mutual Fund, in can be cheaper in the long run to
    actually pay a load up front and avoid fees and expenses in the future.

    There are arguments that you will have less of your money working for you up
    front, but lower fees can actually result in improved growth of your
    investment. Again, it depends on how long you hold the investment. In my
    analysis I've seen that the break even point is somewhere near year 3. From
    year 1 through 3 you make out better with a no load fund, but after year 3
    your account value should be higher with the A share.

    Gene E. Utterback, EA
     
    Gene E. Utterback, EA, Jan 7, 2004
    #6
  7. Jay

    Guest

    "Gene E. Utterback, EA" <> writes:

    > If you look closely you will see that for most fund groups the loaded funds
    > have lower expenses that they no load funds. In some cases, depending on
    > how long you hold the Mutual Fund, in can be cheaper in the long run to
    > actually pay a load up front and avoid fees and expenses in the future.


    Any hint of documentation of that claim?

    Unless you are conflating class 'B' shares with no-load, in which
    case, it might appear to be true, your assertion, as far as I know,
    is completely false.

    > year 1 through 3 you make out better with a no load fund, but after year 3
    > your account value should be higher with the A share.


    A share, B share, C share - all are _loaded_ shares, in general.

    True no-loads versus any of the loaded funds - that's the real
    question. As far as I know, outside of the loads themselves,
    expense ratios are quite similar. Some more, some less.

    The question the OP needs to ask is not "what are the advantages"
    but, rather, "what does one buy?"

    The load is _not_ a management fee or fund expense. It's a
    _sales_ fee and it's normally used to compensate the person
    who took the time to sell the person the fund. This is not
    necessarily a bad thing - as another poster so frequently
    points out to us, most folks need to be sold certain investments,
    else they'd not invest at all. If the load buys one the advice
    and the useful input of the person who sells one the fund,
    that load might very well be worth it and then some.

    For self-motivated folks willing to do their own research
    and fund selection, the load buys nothing whatsoever. Not
    all of us, not even necessarily the majority of us, fall
    into this category however.

    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
    No HTML in E-Mail! -- http://www.expita.com/nomime.html
    Are you posting responses that are easy for others to follow?
    http://www.greenend.org.uk/rjk/2000/06/14/quoting
     
    , Jan 7, 2004
    #7
  8. Jay

    PaulMaf Guest

    >From: "Gene E. Utterback, EA"
    >Date: 1/7/04 10:19 AM Pacific Standard Time
    >Message-id: <bthig3$7chg1$-berlin.de>


    >If you look closely you will see that for most fund groups the loaded funds
    >have lower expenses that they no load funds.


    Not true. And neither is it true that most no-loads hacve lower expenses.

    > In some cases, depending on
    >how long you hold the Mutual Fund, in can be cheaper in the long run to
    >actually pay a load up front and avoid fees and expenses in the future.>


    Compaed to what? The statement is only true when compared to other loaded funds
    who impose the loads via back ends loads or ongoing higher expenses via 12B1
    fees.

    >There are arguments that you will have less of your money working for you up
    >front, but lower fees can actually result in improved growth of your
    >investment.


    The only thing that can improve the growth of one's investments is higher
    returns. And, as a group, loaded funds do not outperform no-loads and vice
    versa.

    > Again, it depends on how long you hold the investment.


    Nonsense!

    > In my
    >analysis I've seen that the break even point is somewhere near year 3. From
    >year 1 through 3 you make out better with a no load fund, but after year 3
    >your account value should be higher with the A share.>


    Nonsense! An A share is only one type of loaded fund. B,C, D and all the other
    alphabet type of shares are loaded funds also.

    Your analysis would only hold true as a class description if you are calling
    all those other alphabet shares no-loads. But that is FALSE!
     
    PaulMaf, Jan 7, 2004
    #8
  9. In article <bthig3$7chg1$-berlin.de>, Gene E.
    Utterback, EA <> wrote:

    > "Jay" <> wrote in message
    > news:rWFKb.4602$...
    > > I am pretty sure that most people here favor no-load funds (for know
    > > reasons). But, since the loaded ones still exist (class A,B,C etc.) there
    > > has to be some advantages (apart from commissions to the Financial

    > Advisors
    > > and party). Any insight?
    > >

    >
    > If you look closely you will see that for most fund groups the loaded funds
    > have lower expenses that they no load funds. In some cases, depending on
    > how long you hold the Mutual Fund, in can be cheaper in the long run to
    > actually pay a load up front and avoid fees and expenses in the future.


    It is true that total expenses of a fund is very important to look
    at. It is also true that some loaded funds have lower annual costs
    than some similar no-load funds. In fact, there are some no-load
    funds that have such high fees as to be in the scam category.

    But, for any loaded fund that you find, I can show you an equivalent
    no-load fund that will have lower annual costs. There are so many of
    each type of fund that no one has any part of the market cornered.

    -john-

    --
    ====================================================================
    John A. Weeks III 952-432-2708
    Newave Communications http://www.johnweeks.com
    ====================================================================
     
    John A. Weeks III, Jan 7, 2004
    #9
  10. "John A. Weeks III" <> wrote in message
    news:070120041404202618%...
    > In article <bthig3$7chg1$-berlin.de>, Gene E.
    > Utterback, EA <> wrote:
    >
    > > "Jay" <> wrote in message
    > > news:rWFKb.4602$...
    > > > I am pretty sure that most people here favor no-load funds (for know
    > > > reasons). But, since the loaded ones still exist (class A,B,C etc.)

    there
    > > > has to be some advantages (apart from commissions to the Financial

    > > Advisors
    > > > and party). Any insight?
    > > >

    > >
    > > If you look closely you will see that for most fund groups the loaded

    funds
    > > have lower expenses that they no load funds. In some cases, depending

    on
    > > how long you hold the Mutual Fund, in can be cheaper in the long run to
    > > actually pay a load up front and avoid fees and expenses in the future.

    >
    > It is true that total expenses of a fund is very important to look
    > at. It is also true that some loaded funds have lower annual costs
    > than some similar no-load funds. In fact, there are some no-load
    > funds that have such high fees as to be in the scam category.
    >
    > But, for any loaded fund that you find, I can show you an equivalent
    > no-load fund that will have lower annual costs. There are so many of
    > each type of fund that no one has any part of the market cornered.
    >
    > -john-
    >
    > --
    > ====================================================================
    > John A. Weeks III 952-432-2708
    > Newave Communications http://www.johnweeks.com
    > ====================================================================
    >


    OK - I will admit that I did NOT communicate my point very well. I am
    usually a pretty decent communicator, but this time I failed. Let me try to
    elaborate on what I MEANT to say.

    I do agree that there are so many funds of each type that no one has any
    part of the market cornered. I also believe that professionals will always
    understand the differences and nuances, but that many "self-help" investors
    do not, though there are some that clearly have the time, education, and
    inclination to do it themselves. And I must admit that when I said
    "no-load" I should have said "C share".

    That being said, here is what I've found - and please keep in mind that this
    is a generality that I've notice, I do understand that there are exceptions
    and I also recognize that my findings are limited to my experience and
    exposure. My comments and examples are not intended to endorse or disparage
    any particular product, there are merely examples that I've noted.

    Advantus Cornerstone Fund has an A share and a C share. They compare as
    follows:

    A Share - Total Expense Ratio = 1.24% - 12b1 Fee = 0.25% - Max Front Load =
    5.5%

    C Share - Total Expense Ratio = 1.99% - 12b1 Fee = 1.00% - No Front or
    Deferred Load

    Assume an investment of $50K with NO GROWTH. I know this won't happen, keep
    in mind this is just a simplification for the illustration. As long as both
    Share classes perform the same, it shouldn't matter.

    The first year, the A share load is $$2750 and the fees are $704.03, leaving
    $46,545.98 in the fund.

    The first year, the C share has no load and the fees are $1,495.00, leaving
    $48,505.00 in the fund. So far, the C share is ahead.

    In years 2, 3, & 4, the A Share has fees of $693.54, 683.20, & 673.02 and a
    remaining balance of $44,496.22.

    In years 2, 3, & 4, the C share has fees of $1,450.30, $1,406.94, &
    $1,364.87 and a remaining balance of $44,282.90. At this point, there is
    more money remaining in the A share holding than the C share holding.

    After 15 years the A share has an ending balance of $37,723.03 while the C
    share's ending balance is $31,711.56, the A share total fees and costs are
    $12,276.97 while the C share total fees and costs are $18,288.44. The C
    share cost $6,011.48 more than the A share over 15 years.

    I've built an Excel spreadsheet where the fund load, expense ratio, 12b1
    fees, and initial investment are input for an A share and a C share and
    virtually every time I run this analysis I get a similar result - it costs
    less (and you have more the end) with MOST A shares than with C shares. Of
    course, I haven't run every single available fund. But I have picked funds
    at random and funds my friends bought and funds that seem to be "hot" and
    I've yet to find one where the C share wins. I'm sure there are some that I
    just haven't found.

    More importantly though, at least in my thinking, is that this underscores
    the importance of using a professional for most investors who don't have the
    time, education and inclination to do all the research themselves. The song
    I hear the most is "you don't need an advisor, just find a nice no load
    (which I'm equating to a C share) and buy it yourself - don't pay a
    commission to buy an investment."

    The problem here is twofold, first - the C share may not be cheaper in the
    long run; second - how does one find a "nice" fund considering there are so
    many of each type of fund that no one has any part of the market cornered?

    Of course, I could be all wet on my thinking and analysis. Maybe I'm
    missing something here, if so I would appreciate the pros here pointing it
    out to me.

    Gene E. Utterback, EA
     
    Gene E. Utterback, EA, Jan 8, 2004
    #10
  11. Jay

    Guest

    "Gene E. Utterback, EA" <> writes:

    > inclination to do it themselves. And I must admit that when I said
    > "no-load" I should have said "C share".


    Repeat after me. I'll say it slowly.

    C Shares are NOT lo-load.

    C Share carry a Load.

    > C Share - Total Expense Ratio = 1.99% - 12b1 Fee = 1.00% - No Front or
    > Deferred Load


    Moreover, if the 12b-1 fee is greater than 0.25%, the fund cannot
    call itself no-load.

    > I've built an Excel spreadsheet where the fund load, expense ratio, 12b1
    > fees, and initial investment are input for an A share and a C share and


    etc. etc. All irrelevant. C shares, like A shares, are not no-load.

    They have have a load in a different form. You're right, if you're
    going to pay a load, sometimes a C load will be lighter than an A
    load. But they are _both_ loads that are not carried by a no-load fund.



    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
    No HTML in E-Mail! -- http://www.expita.com/nomime.html
    Are you posting responses that are easy for others to follow?
    http://www.greenend.org.uk/rjk/2000/06/14/quoting
     
    , Jan 8, 2004
    #11
  12. Jay

    BobS Guest


    >I've built an Excel spreadsheet where the fund load, expense ratio, 12b1
    >fees, and initial investment are input for an A share and a C share and
    >virtually every time I run this analysis I get a similar result - it costs
    >less (and you have more the end) with MOST A shares than with C shares. Of
    >course, I haven't run every single available fund. But I have picked funds
    >at random and funds my friends bought and funds that seem to be "hot" and
    >I've yet to find one where the C share wins. I'm sure there are some that I
    >just haven't found.
    >
    >More importantly though, at least in my thinking, is that this underscores
    >the importance of using a professional for most investors who don't have the
    >time, education and inclination to do all the research themselves. The song
    >I hear the most is "you don't need an advisor, just find a nice no load
    >(which I'm equating to a C share) and buy it yourself - don't pay a
    >commission to buy an investment."
    >
    >The problem here is twofold, first - the C share may not be cheaper in the
    >long run; second - how does one find a "nice" fund considering there are so
    >many of each type of fund that no one has any part of the market cornered?
    >
    >Of course, I could be all wet on my thinking and analysis. Maybe I'm
    >missing something here, if so I would appreciate the pros here pointing it
    >out to me.
    >
    >Gene E. Utterback, EA
    >


    Forget the C shares. How about a comparison between A, B, C or any
    other share you wish to a true no load fund. With which firm are you
    employed?

    Bob
     
    BobS, Jan 8, 2004
    #12
  13. Jay

    Doug Guest

    There is an inherent conflict between the interests of a mutual fund
    saleman that gets compensated for managing the customer's money and
    the customer's best interest. This is due to the fact that the mutual
    fund salesman makes money off of the investment, and the customer
    (hopefully) makes money off the investment. Initially, it is ALL the
    customer's money, so the mutual fund salesman has an incentive to get
    as much of it as possible (sorry, but people are greedy).

    If you buy true no commission, low expense, ("noload"), funds direct
    from a noload fund company, you have cut out ONE manager of your
    money. There are still the expenses of the fund to consider, and there
    is an inherent conflict between the interests of the managers of the
    fund and the fund shareholders. There is at least one fund company
    that gets around some of this, Vanguard, by making the fund share
    holders the owners of the fund (a mutual, mutual fund company). BTW
    does anyone know of any others? USAA?

    Now, if your mutual fund salesman is providing services to you that
    exceed his take, then you may be dollars ahead by using him. If you
    are the type of person who wants or needs or gets value out of talking
    to guy or gal, and you like that relationship, then you may be getting
    your money's worth by using his services. Some people would never
    invest or save at all if not "sold" to the idea by a salesman. They
    benefit also.

    The advantage of load funds, then, is the salesman who sells you the
    fund is a source of information, comfort and advice to you. Just
    beware, he has to eat, and he eats your money. Are you getting your
    money's worth? Are he and his firm trustworthy? Do your funds keep up
    with SP500, DOW or some other measure of the market? Can you even
    tell? Will he tell you if they don't? Remember, it is YOUR money, not
    his.
     
    Doug, Jan 10, 2004
    #13
  14. >Doug" <> wrote in message
    news:...
    > There is an inherent conflict between the interests of a mutual fund
    > saleman that gets compensated for managing the customer's money and
    > the customer's best interest. This is due to the fact that the mutual
    > fund salesman makes money off of the investment, and the customer
    > (hopefully) makes money off the investment. Initially, it is ALL the
    > customer's money, so the mutual fund salesman has an incentive to get
    > as much of it as possible (sorry, but people are greedy).


    Conflicts of interest aren't a reason to avoid paying for financial advice
    or help. A business has a conflict in paying a salaried or wage earner any
    more than necessary. Afterall, if they pay too much, that cuts into
    shareholder profits. A surgeon has a conflict of interest in recommending
    surgery where he earns a substantially larger fee than just for an office
    visit. A trial lawyer has a conflict of interest when they suggest suing a
    company, when it is clear the defendent did nothing wrong, but has
    insurance, so there is more than likely a settlement to be had.

    Conflicts exist everywhere. It is a straw man argument to indicate that one
    must avoid all conflicts of interest, or even avoid some of them.

    > If you buy true no commission, low expense, ("noload"), funds direct
    > from a noload fund company, you have cut out ONE manager of your
    > money. There are still the expenses of the fund to consider, and there
    > is an inherent conflict between the interests of the managers of the
    > fund and the fund shareholders. There is at least one fund company
    > that gets around some of this, Vanguard, by making the fund share
    > holders the owners of the fund (a mutual, mutual fund company). BTW
    > does anyone know of any others? USAA?


    A registered representative is, more often than not, NOT a "manager" of
    money, so one isn't cutting out a manager, they are just avoiding a
    salesperson.

    > Now, if your mutual fund salesman is providing services to you that
    > exceed his take, then you may be dollars ahead by using him. If you
    > are the type of person who wants or needs or gets value out of talking
    > to guy or gal, and you like that relationship, then you may be getting
    > your money's worth by using his services. Some people would never
    > invest or save at all if not "sold" to the idea by a salesman. They
    > benefit also.


    One need NOT obtain services that "exceed his take" to justify a mutually
    beneficial relationship. To suggest otherwise places the author squarely
    among the lower two types of clients that most advisors want to avoid
    (Bachrach's UYI's and DTA's). Value is measured in so many ways that aren't
    readily quantifiable, which is why so many analytical types never figure out
    how the business really works.

    The irrefutable fact is the OVERWHELMING MAJORITY of public securities are
    SOLD by a third party, be it a registerd rep or investment advisor (Sources:
    ICI, NASD, SEC, NYSE). OVER HALF of mutual funds are sold via the
    broker/dealer channel, and when one factors in RIAs, the advisor channel
    total is well over FOUR-FIFTHS of mutual funds.

    The stock market is an auction, with prices based on supply and demand.
    Remove FOUR-FIFTHS of the demand, and what would happen to the prices of
    public securties?

    They would be DESTROYED.

    > The advantage of load funds, then, is the salesman who sells you the
    > fund is a source of information, comfort and advice to you. Just
    > beware, he has to eat, and he eats your money. Are you getting your
    > money's worth? Are he and his firm trustworthy? Do your funds keep up
    > with SP500, DOW or some other measure of the market? Can you even
    > tell? Will he tell you if they don't? Remember, it is YOUR money, not
    > his.


    Since the OVERWHELMING MAJORITY of funds are NOT designed to track, much
    less beat, an index, those measures aren't the sole measure of success of a
    fund, or fund manager. The whole "eats your money" is a red herring. If one
    puts their money in CDs, and a mutual fund salesperson persuades them to
    invest in a stock fund, and 10 years later, they have 5 times more money as
    a result, who was eating the clients money? NOBODY. The transaction isn't
    a zero sum game. It never was, and never will be.

    People who attack the investment salespeople ALWAYS FAIL to understand a
    simple, yet irrefutable, fact of life: Good business begets good business.
    If a salesperson doesn't do right by their client, the client will go
    somewhere else. Plus, they take with them ALL future referrals, compounding
    any errors on the part of the salesperson. Capital goes where it is
    rewarded, BUT it STAYS where it is well treated. This is why so many people
    continue, despite the media bias, to STAY with their registered reps and
    RIAs.

    The free hand of the market continues to validate the supremacy of the
    advisor channel.

    The smartest No Help fund buyers WANT registered reps to go out and solicit
    more assets, because that is what drives up the prices of what they already
    own. Those that argue to the contrary haven't the first clue of how the
    system truly works, and are DEPENDENT upon misinformation and mythology
    promulgated by others who have an agenda, and they are misguided by
    incomplete statistics in their decision making process. They are the ones we
    so often refer to as guilty of confirmation bias, mental accouting, and
    judgmental heuristics.

    Brent D. Gardner, ChFC
    Chartered Financial Consultant
    http://members.cox.net/brentdgardner1378/

    "Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
    to heaven if you die dumb. Become better informed. Learn from other's
    mistakes. You could not live long enough to make them all yourself." - Hyman
    George Rickover (1900-86), Admiral, US Navy, advocated development of
    nuclear subs & ships

    The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
    (ChFC), designations owned and exclusively offered by The American College,
    signify the highest standards of academic study and professional excellence
    in the financial services industry.
     
    Brent D. Gardner, ChFC, Jan 12, 2004
    #14
  15. Brent D. Gardner, ChFC wrote:

    > Conflicts of interest aren't a reason to avoid paying for financial advice
    > or help. A business has a conflict in paying a salaried or wage earner any
    > more than necessary.


    I think the example is a bit better if you suggest that an
    employee has a conflict of interest when they ask for a pay
    increase, since I think it might be helpful to view it a bit
    more personally <grin>. Now, most of us live with the fact
    that there is an inherent conflict between the interests of
    those we ask to pay us (who would, all things being equal,
    be better off if they transferred less to us) and ourselves
    (who, all things being equal, would be better off if more
    was transferred).

    Where there are problems are in cases where either a) there
    is an undisclosed conflict (I don't inform my client that if
    he/she buys something from you, I get a payment) or the
    "potentially harmed" party fails to consider that conflict
    (I end up with a receptionist who is the highest paid in the
    nation <grin>).

    There is virtually never a "perfect" identity of interests
    between yourself and whatever source you use to obtain
    advice and information. On usenet, it could be an
    undisclosed financial interest or, more likely here, simple
    ego interest (we all believe we are right <grin>). If you
    say you want to avoid dealing with those who have
    conflicting interests, you pretty much can't take part in
    virtually any transaction or relationship.

    That said, I would suggest being wary of anyone who suggests
    they *don't* have a conflict of interest or who withholds
    information about their potential conflicts.

    --
    Ed Zollars, CPA
    Phoenix, Arizona
     
    Ed Zollars, CPA, Jan 12, 2004
    #15
  16. "Ed Zollars, CPA" <> wrote in message
    news:...
    > That said, I would suggest being wary of anyone who suggests
    > they *don't* have a conflict of interest or who withholds
    > information about their potential conflicts.


    I've never said I don't have any, but I don't worry about them, either.
    Those that do have more serious problems, and I'm not in the business of
    fixing them.

    One of the problems with this medium is that a lay person can post one
    sentence, out of context, and another lay person (or millions!) read it and
    accept it for the gospel. This is why I spend my time correcting the
    mythology. =)

    Brent D. Gardner, ChFC
    Chartered Financial Consultant
    http://members.cox.net/brentdgardner1378/

    "Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
    to heaven if you die dumb. Become better informed. Learn from other's
    mistakes. You could not live long enough to make them all yourself." - Hyman
    George Rickover (1900-86), Admiral, US Navy, advocated development of
    nuclear subs & ships

    The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
    (ChFC), designations owned and exclusively offered by The American College,
    signify the highest standards of academic study and professional excellence
    in the financial services industry.
     
    Brent D. Gardner, ChFC, Jan 12, 2004
    #16
  17. Conflicts of Interest and Financial Planners (was: Advantages ofLoaded Funds?)

    Brent D. Gardner, ChFC wrote:

    > "Ed Zollars, CPA" <> wrote in message
    > news:...
    >
    >>That said, I would suggest being wary of anyone who suggests
    >>they *don't* have a conflict of interest or who withholds
    >>information about their potential conflicts.

    >
    >
    > I've never said I don't have any, but I don't worry about them, either.


    I might modify that slightly--I'm not likely changing how I
    do business, so if you do business with me you'll get my
    current fee structure which I will disclose. It should be
    obvious to anyone where my interests might conflict with
    yours (recommending a service I perform, or having me
    perform that service for a fee), but you have to make the
    call about dealing with me.

    The same would be true of your clients. I presume that you
    do *not* recommend something solely because it pays a higher
    commission than some other, clearly more appropriate,
    investment (for example, putting an elderly client's entire
    life savings in a highly speculative growth fund that might
    offer an extremely high commission level). As well, my
    clients have to presume that I wouldn't recommend they
    undergo a detailed estate tax planning engagement for
    $10,000 or more when their total net estate is $100,000 and
    they are 85 <grin>.

    In both of our cases, I presume we believe we can put our
    immediate financial gain aside when that serves the client's
    interests and *not* perform a service or make a sale when
    it's clear to us that to do either would not be in the
    client's best interest.

    But I do believe that, since we both have to eat <grin>,
    that our financial interests might influence our view. I
    don't perform tax planning services based purely on need for
    free to all comers, and I don't expect you to spend tons of
    time working with someone on how to allocate investments in
    a no-load fund. At some point we do say that our financial
    influence is more important than that of a client or
    potential client. And, at the margin, it's arguable that
    the financial incentive might influence our view in a
    particular case--so that's why the client gets the final call.

    --
    Ed Zollars, CPA
    Phoenix, Arizona
     
    Ed Zollars, CPA, Jan 13, 2004
    #17
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