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Sunday, February 10, 2013

A Load Fund Saga

Nickel -and-Dimeing Away
Nickel-and-Dimeing Away
Load Mutual Funds  Keep Nickel-and-Dimeing Away 
(To the tune of Slip Sliding Away by Paul Simon)

You can't let your guard down.  That's today's lesson.

I've been working on an account, selling class "C" shares of funds after they become long-term, held for more than 1 year.  Why wait? Because then the 1% back load is supposed to go away.

On Schwab, this is pretty easy.  You go to "Positions" and then "Unrealized Gain/Loss" and click dollar amount at "Cost Basis" for the security of interest and get: CLICK TO ENLARGE

Pretty easy right?  Then you add up the "Long Term" position and sell.  Here you would sell 708.656 shares of the fund (706.785 + .429 + 1.442).

Pretty straightforward right?  Actually it isn't.  The fund here is a PIMCO fund, and they charged a redemption fee on the sale - a bit over $80.  It has since been reversed and the money put back in the client's account.

How did it get reversed?  Schwab was contacted and told there should be no fee.  They asked for information on when the security was purchased.  I pointed out that they were given this info when the account opened - otherwise I wouldn't be able to read the info in the table above online.  They came back with some mumbo jumbo about average cost, etc.

You probably know that, when you do your taxes, you can choose FIFO, LIFO or average cost.
Here it's different - at least that's what I told them; but, truthfully, how can you ever know with all of the fine print and legalese attached to every transaction.  I do know what "C" shares are, though.

So, I held the high ground and insisted that the load goes away after 12 months and that the securities had been held for longer than 12 months - THERE SHOULD BE NO REDEMPTION FEE.

They then contacted PIMCO and gave them purchase date information.

PIMCO then returned the redemption fee back into the client's account.  But, I wonder how often this fee is assessed and slips right by an unsuspecting investor?  Secondly, why can't something as simple as this be done right?

IMHO, the load mutual fund industry is killing itself and I, for one, will while you're lowered
Down to your deathbed
And I'll stand over your grave
'Til I'm sure that you're dead.
(Dylan - "Masters of War" - covered by Pearl Jam)


  1. That is terrible! These are not some unknown names - Schwab and PIMCO! I wonder how many clients have been duped this way and for how many years!

    Good catch Robert!

  2. There are few managers good enough and who can outperform the market and the tax burden consistently to justify paying a load...... as a matter of fact I can't think of one. Low cost is the most reliable predictor of future performance.