Mutual Fund Broker Costs and Fees
In order to avoid the unfair schemes of many investment advisors and some mutual fund families you should be aware of such issues as back-end loads, expenses for which no sound justification has been provided and redemption fees.
- Back-end loads
Most brokers will persuade you to participate in mutual funds that are burdened by loads. They are motivated to do so since they will get their commission checks and sustain their living. When you decide among the different types of investments you should closely observe the loads that are included in them. You should also strive to take your broker out of the picture and search for no load counterparts to the loaded mutual funds you have been offered. Since the no load mutual funds have lower expense ratios and you will save money from the loads you would have otherwise paid if you have invested in a loaded mutual fund, you will have additional money to invest.
You will also benefit from the lower management fees, which are quite high in the loaded mutual funds.
- Unjustified expenses
Another issue that is incorporated when deciding on the use of broker services is the sometimes unjustified high expense ratio. For example, if a fund is not giving back the satisfactory returns to cover an expense ratio of 1.1% to 1.4% of assets, it is not worth investing in it. Additionally, if a particular fund offers a 9.7% return over a five-year period but in return to 2% of your assets, you should again not consider its inclusion in your investment portfolio. Instead you should look for a no load alternative like the S&P Index that typically returns 15%. You will also save from sales charges, management fees and marketing fees.
- Redemption fees
Since most redemption fees are quite concealed, therefore you should be very vigilant when trying to find whether you are experiencing such. Redemption fees are considered in case a mutual fund asks its investors to choose from either keeping their fund for a particular time period or paying a particular percentage of the purse. In case the mutual fund is experiencing its greatest times, it will be worth doing this since the investors will double their money over the specified period.
But, in case the mutual fund experiences a drop down its value, the real purpose of the percentage of the purse will be discovered. Namely, it was to lock the investors in the mutual fund due to the potential bad times of the mutual fund.
No matter what other financial implications are included in your relationship with your broker, you should know what you get in return to the many fees you are about to pay with your dealings with the broker.
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