MUTUAL FUND CHARGES

A commission-based or a fee-based advisor receives payments from mutual fund loads as well as ongoing charges for selling the funds to you. These commissions are part of your cost of purchasing the funds. Mutual funds have different ways to collect these fees that may be nearly invisible to you. Some mutual funds sell different classes of shares. These classes all represent investments in the same fund portfolio, but have different fee structures. Class A shares have up-front sales charges, typically 4.5% - 6%. Class B shares have contingent deferred sales charges (CDSC) or “back-end” loads, which you pay if you sell the fund, usually within 5 - 6 years. Class B shares charge higher annual expenses, including 12b-1 distribution fees. By the time the CDSC expires, you will have paid the equivalent of the sales charge through the additional annual fees. The fees have been automatically deducted from your account, but not reported on your account statement. It may seem like these expenses are “nickels and dimes”, but over the long-term they can really add up and affect your results. On an initial investment of $100,000, the 1% difference between a 7% and an 8% return is $79,000 over 20 years.  

EXAMPLE

For example, the Core Equity Fund of a well-known fund company distributes Class A and Class B Shares, as well as several other classes. For an investment of less than $50,000, the following sales fees apply.  

You can see that an increased 12b-1 fee is added to the annual expense you pay for the Class B shares, compensating for the decreasing back end load.  

FEE-ONLY COMPARISON

For a hypothetical investment of $49,000, similar to the example in the table, the Class A sales charge would be $2,817. A fee-only advisor, like LFM&P, can recommend a no-load mutual fund with an equivalent or better historical performance that has no sales charge. This amount of savings can pay for a comprehensive financial plan, or several years of on-going investment advice or management services.