Tag Archives: Fees

What are mutual fund share classes and why are they important

Mutual fund share classes are little understood by the investing public, but they are important because they determine how much the investor pays in fees.

Fund classes are identified by an alphabetical letter that follows a mutual fund’s name in most newspapers.

Mutual fund “A” share classes typically have a “front-end load,” a sales charge payable when you buy the fund. This fee is used to pay the brokerage firm and part of it goes to the broker who sells the fund.

The amount of the load depends on the kind of fund – bond funds generally have lower loads than stock funds – and the amount of money invested. The more money that’s invested, the lower the fee. Known as “break points,” they refer to points at which front-end charges go down. For example, the front-end load for the Growth Fund of America class A shares is 5.75% on investments up to $25,000. But if you invest $1 million dollars or more the front-end load is 0%.

Mutual fund “B” shares typically have a “back end load” payable when you redeem the shares. These decline over a period of years (usually 6 to 8 years) until they finally disappear.

Both “A” and “B” shares usually have an “12b-1” marketing fee, generally 0.25%, charged annually.

Class “C” shares have no front-end load, a small back end load, usually 1%, that goes away after 1 year. However, they have higher 12b-1 fees, typically 1%.

There are other share classes such as I, Y, F-1, F-1, F-2. In fact, some funds have as many as 18 share classes. They are all the same fund; the only difference is the fee charged to the investor.

Many fund families offer “institutional” share classes that are only available to certain investors. Institutional shares are purchased by businesses who are in the investing business such as banks, pension funds, insurance companies and registered investment advisors (RIAs) who buy them as agents for their clients. This is one of the benefits of working with an independent RIA who has access to lower cost funds, load waived funds and no-load funds that are often not offered by the major Wall Street firms.

Contact us for more information.

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Merrill Lynch to Clients: Join “One” or Pay Commissions (via Financial Advisor Online)

The largest investment firms are moving their clients to their fee-based platforms.  Most of the other firms are doing the same.

There is nothing wrong with fees rather than commissions.  In fact, we believe that fees are preferable for most investors.

But they are not always the right, or the lowest cost, option for some.

For clients who have less than $1 million, the fees with “One” are often higher than they can get elsewhere.

If you are a customer at one of the “Big Box” stores and want to shop around to see if you can get better service and perhaps a better price.  Check us out.

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Merrill Lynch Jacking Up Fees

We read of a broker at Merrill Lynch who left the firm because, and we quote:

“Under Merrill Lynch One, fees were going to go up for my clients by 30% to 40% on average.”

Wow, that’s a lot!

Account fees have always been a sore spot for us at Korving & Company, which is why we use Charles Schwab as our custodian. They don’t charge account fees.
Merrill is getting some negative reaction from the financial press. Here’s one from Forbes (Merrill’s Fee Debacle:

You’re near the top of your industry and a cash cow for your parent (Bank of America). The future looks bright as the financial crisis of 2008 fades. So, what do you do? You announce a complicated new fee structure that on the surface looks like it may increase fees for many of your top clients in a fast growing (fee-based) business. Then you explain it in murky terms. Not, in my opinion, too smart!

These fee changes are part of a platform restructuring that merges five separate managed account platforms on to a new one called Merrill Lynch One (set to rollout in September).

The author criticizes Merrill Lynch for creating confusion and a lack of clarity on how this is going to affect the clients and the brokers at Merrill.
If you have an account at Merrill Lynch, you may want to check out our clear, easy to understand and fully transparent fee structure.

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