Eye-Opening Article on Load Funds

Source: Movie Mezzanine

When we were kids, before the days of movie ratings, Freddie Gonzalez, Steve Lowe, and I walked to Wheaton Plaza to see Alfred Hitchcock's Psycho.  On the walk home, Steve and I had to explain the movie to Freddie who spent a good part of the show with his eyes closed and bent over trying to hide behind the seat in front of him.  He couldn't handle Norman Bates' strange handling of the death of his mother.  When Lila headed up the hill to find out what was going on in the Bates' house, Freddie was almost on the floor of the theater covering his eyes.

Freddie just couldn't uncover his eyes and take in the horror Hitchcock presented on the screen.  All of us had nightmares for weeks.

A different type of subtle horror takes place today in the world of investing with various class mutual funds.  A carryover from the days when the insurance salesman knocked on your door and sold mutual funds on a commission basis, today, load funds are still around.  Investors are still paying a 5% commission for funds when the same fund or a similar fund is available commission free.  The horror is when advisors charge investment management fees and put clients in load funds!

Someone has to go up the hill, turn the "old lady" in the chair around, and find out what is going on.

Steve Garmhausen, in "Are Sales Loads for Suckers" (Barrons, 1/19/2013), does this.  This article will save thousands of dollars for those investors willing to uncover their eyes and read and check out their own holdings.

A couple of quotes:

The more an investor learns about share classes, the more he may suspect that he's the proverbial sucker at the poker table, paying more than everyone else for the same funds. And the fact is, he may be on to something.

But the multiplicity of share classes can also create temptation for brokers to recommend shares based on what they stand to earn from the sale. So how do you ensure that you're in the most economical share class of a fund? 

(I've been accused of spoiling a movie line so I'm not going to give you the answer - please read the article).

To find out if a fund you hold does have a load, just put the ticker symbol in at www.morningstar.com. The first page will show you if there is a load.  The next step is to find out why you own a load fund.

For those for whom all of this is a bit much, I would recommend an hourly consultation with a fee-only advisor or even a knowledgeable family member or friend to go over what you hold.  The fee for the hour may very well pay for itself several times over.