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Saturday, December 22, 2012


Wear a long sleeve shirt!
I'm working with a client who has a broker that receives monthly contributions to put into a Fidelity Fund. The client deposits $166.66 at the 1st of the month; the broker takes $6.33 as a "sales and creation charge" (3.8%) and $1.50 as a "custodial charge."   The bottom line is that $158.83 gets invested in the Fidelity mutual fund.  Thus, before expense ratios or anything else, almost 5% is taken out.

This has been going on with the broker for a number of years.  Here is a press release from NASD on the censuring and fining of this upstanding broker.

A couple of points from the press release:

  • Using misleading sales scripts, inappropriate comparisons and omissions of important information, First Command sold hundreds of thousands of complicated and often enormously expensive plans to young members of our armed services, who are frequently inexperienced investors,” said NASD Vice Chairman Mary L. Schapiro.  I guess this is their way of thanking our military.
  • Under Systematic Investment Plans, an investor makes monthly payments for a fixed term, typically 15 years, which are invested in underlying mutual funds.  The purchaser is charged a 50 percent sales load on the first 12 monthly payments.
       Brings to mind Woody Guthrie:
                                    Yes, as through this world I've wandered I've seen lots of funny men; Some will rob you with a six-gun, And some with a fountain pen.
  • First Command told its clients that a benefit of the high first-year sales charge was to “instill discipline.”  However, First Command failed to inform its customers of the lost earnings potential as a result of the sales charges deducted from the customer’s first 12 months’ investments. For example, an investor who made monthly payments of $100, totaling $1,200 in the first year, would be left with an investment in the funds of only $600 for that year. How can these people sleep at night? Do they not have a conscience?
THEY ARE STILL IN BUSINESS!!!!!!  Brokers are not fiduciaries.  If you don't know what that means or implies, please find a registered investment advisor, get an hour's worth of consultation, and make sure your investments are in order.  IT IS NOT ILLEGAL TO RIP YOU OFF IN THE INVESTMENT WORLD!


  1. All investors need to continually review the fees they are paying their investment advisers and mutual fund companies and keep these to a minimum. As Bogle says, investors get to keep what they don't pay for, and don't forget that taxes count for a good size chunk of expenses too.

  2. The part I don't get is why the brokers even work for a firm like this. To be a broker you need to be able to read a contract, be somewhat articulate and do some math. With these skills there are a lot of places one can work that are legitimate. Why work for a sleeze bag operation ripping off the military et. al.?

  3. There is always a question whether wait and invest in a larger sums or smaller one. Average transaction to buy funds would be between $6-$10 if you would do it yourself.
    In your example the broker would take $8. I think this percentage will make a big difference when you invest a large sum. On a smaller scale it could be cheap way to invest money.

    I think it is an amazing that the company in question manage to survive. On the other hand it was only possible with the ignorance of their clients. Both are equally guilty...