Financial Advisor Question


G

gjudd

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.
 
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T

Tad Borek

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?
Check the prospectus for the funds, they'll give details on this. Just
because a B-share has no front-end load to you doesn't mean the advisor
isn't compensated. For example a B-share sale might pay a 4% commission
to the seller at time of sale. This commission is paid by the fund
company to the broker dealer, and divided between the firm and the
registered rep based on their split (higher-producing reps keep a larger
percentage of the commissions). After that the firm/advisor receive
trails, as long as you hold the fund, paid out of the fund expenses. All
this stuff is in the prospectus for the fund.

The broker-dealer firm may also get money through a "revenue sharing"
arrangement with the fund company. Technically that doesn't come from
fund assets but it comes from the fund company, which gets its revenue
from fund expenses.
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?
He shouldn't unless he thought the B-shares would clearly be more
suitable for you, to the point where selling A shares could get him in
trouble (though off the top of my head I can't think of that scenario).

The one clear case where you should insist on A shares is when you
qualify for significant "breakpoint" discounts. If you buy enough A
shares (or commit to doing so within a time period, and usually - within
a fund family) you get them at reduced or even zero up-front load. Where
A shares would be at no load, the B-shares are unsuitable because of
their higher expenses.

-Tad
 
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N

noname87

Check your mail for a article I sent you about share classes.

Short answer: Your broker will probally be happy. A class has a front
end load whick pays his comission.
 

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