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Expense ratio and financial planners

edited August 2011 in Fund Discussions
Do financial planners receive any fees or commissions from funds they recommend to clients? My mom has several no-load First Eagle funds (5-star ratings from M* so excellent long-term performers), but their expense ratios are huge -- nearly 2 percent. Or maybe it doesn't matter if these funds continue to be strong performers, though others in her portfolio with high ERs have not done so well. Thanks.


  • edited August 2011
    They also get paid by 12b-1 fees that SEC allows fund management companies to attach to the funds.

    Update: Can you give a couple of fund tickers your mom is investing in? It is easy to look up and find out what sort of fund they are. @BRBond mentioned C class shares. They look like no-load but they are actually level loaded (similar to 12b-1). Your mom's advisor is saying no-load but perhaps he got your mom into these C shares and getting his commission. How is your mom's financial planner compensated? Is your mom paying any direct fees for services rendered? (S)he should disclose this in his/her ADV part II which should be provided to your mom.
  • If your mom's "financial planner" is a registered rep, then it is likely that she has "C" share class funds that have no front-end sales load, no back-end load and pay out a share of the expense ratio (12b-1 marketing expense portion of the ER) to the rep of record.

    Fee-only financial planners and RIA's are usually not paid by fund companies and will normally use an administrative or institutional share class. Everyone deserves to be paid for value added. It should just be all on top of the table.
  • Quite a few are Class C funds --- First Eagle Global (FESGX), First Eagle US Value (FEVCX), Pimco Low Duration (PTLCX), Pimco Short Term (PFTCX), Pimco Unconstrained Bond (PUBCX), Thornburg Limited Term Income (THICX), Thornburg Investment Income Builder (TIBCX), Thornburg Limited Term US Govt (both class A, LTUSX and class C, LTUCX). This is about 70 percent of her portfolio. She is 86. Thanks.
  • C-class shares are the bane of the industry. Unlike B shares, they never convert to A shares. So the investor is stuck with paying outrageous 12b-1 fees forever. And if the salesperson indeed described these as no-load funds, that is fraudulent.

    Fee-only planners, as one poster pointed out, are never paid by the fund companies. They use either true no-load funds, institutional-class shares, or access A-class shares without a commission (called purchase at NAV).
  • The beauty of this forum is how educational it can be re topics like Class C shares, often described as "no load" funds. Seems there's more to the story. My mom and I will be meeting with her adviser soon (not a fee-only planner), and it will be interesting to hear her explanation for why so many funds in Mom's portfolio are Class C shares and the 12b-1 fees. Thanks to all for opening my eyes, yet again.
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