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Front End Load Fee Waivers?

edited May 2011 in Fund Discussions
Considering hiring a financial planner affiliated with UBS.... his model portfolio for my retirement (which I am) includes about six funds with front-end loads, including Templeton World. I mentioned I generally have a strong distaste for paying loads and he said there would be no loads or front-end fees charge for these funds. He mentioned something about an arrangement with UBS but I was unclear about that. Am I missing something? Thanks.


  • I'm not going to say that this person isn't a good financial planner, I don't know. I will say:

    1. The advisor may have access to load-waived or no-load versions. I know there is a no load version of the popular Templeton Global Bond (TEGBX) fund. What he/she sees in Templeton World I have no idea.

    2. I had family with a financial planner at a large financial firm and it really became quite apparent that the funds used - while not the world's worst - were clearly the funds that the firm was trying to push - funds that were in many cases not terrible but didn't seem exceptional in any way either. When better funds were suggested (something like First Eagle), they would get the run-around.

  • Are the fund all selected from loaded funds?

    Some advisors can get front load funds as load waived but these typically charge a percentage for assets under management. Even so they might be getting compensated by the fund company via 12b1 fees (they call it fee based)

    I suggest you should ask this advisory how s/he is compensated. The advisor should provide a ADV part II document detailing the compensation arrangements.
  • Appreciate the good advice. He is a fee-based planner who receives 1.5% of assets under management. Of about 14 asset classes, mostly mutuals, about eight show load fees in the M* snapshot. But he says I won't have to pay those. Tnks for advice too re asking him if he will receive 12b1 fees from any of the funds. What does ADV stand for re the ADV Part II document?
  • edited May 2011
    Hi Skip. The linked MSN Money page shows the fee structure for TEMWX, which is the Class A edition. Make sure you are really getting class A and not another (inferior) class of this fund.

    I have no reason to doubt his word that he can get you in load free. However, if you are new at this, loads are not easy to identify. If theres a load you'll notice that the price you are being charged when buying shares is slightly higher than the NAV for that date as appears in newspapers or on the web. In other words loads are hidden in the "offering" share price and not listed separate. Trust, but verify.

    The fund carries a .25% 12b1 fee but that is included in the 1.09% ER and not charged to you separately. I'd say don't worry about the 12b1. The 1.09 ER aint bad-pretty typical for a global fund. When I add up the 12b1, administrative fee, and management fee I get 1.03%. Somewhere, likely in their prospectus they will tell what the remaining .06 is from. One possibility is underlying fund expenses should they use ETFs or have someone else managing the cash portion. Overall, not bad.

    I'd guess your advisor is getting all or part of that 12b1 through some sort of remuneration agreement. However, since its included as part of the overall ER, why sweat it? This was the first fund I ever owned. Workplace plan in the late 70s offered it with a discounted 4.17% load through a commission based broker and yes, the broker did receive a part of the 12b1. But, you had to read the prospectus at least 3 times to figure that out. Liked the fund and held it until around '97.
  • My grandson had one of these slick talkers from Wachovia investing his inheritance in odd ball things like UITs and other loaded funds. He would never come clean on how he was being paid and you know is being paid.
    How else could he afford his yacht?

    I find it particularly offensive that a "fee based" planner socking you 1.5 is also getting money under the table.
    Test him.
    Tell him to buy you some OAKBX and RSNRX with out loads and see how he reacts.
    OH wait! You are paying him 1.5% TO GIVE YOU GOOD ADVICE, so you should not have to tell him what to buy.
  • ADV Form Part 1 and Part 2 are the registration paperwork of Advisor with SEC.

    ADV probably stands for Advisor.

    Here is a quick description from SEC.

    1.5% is a bit steep fee which I would consider excessive. I would not pay more than 1%.

    Also I have a problem with Fee Based. If the advisor is not being compansated from another source, he should have said fee only. Fee based is often used to describe double dipping: getting commissions from other sources and also charging AUM fees.
  • edited May 2011
    I wouldn't call it money under the table as long as it is disclosed. But, its creepy to think that year after year an "advisor" skims off a small fraction of your investment, even though its disguised as part of the fund's ER. In addition, it may provide incentive for the advisor to keep you in a riskier asset mix than appropriate for you because he has skin in the game and stands to make more as your assets grow. I'd place the blame on the 12b1 fee structure which is still in wide use despite efforts by consumer groups and regulators to get rid of it.
  • edited May 2011
    Again, I don't want to say this advisor in question is good or bad, but the fund choice seems similar, and when family dealing with a similar advisor started bringing the kind of suggestions to the table, 1:) it was initally a bit of a run-around and 2:) he eventually said he could not get no-load funds and 3:) that it was even kind of a pain to try and get good load funds into the mix when those were suggested. They left him, but it's the kind of thing where they would not have questioned it had I not started talking with them about it. People just don't know - that's not to say that they're not intelligent - but they just leave running money entirely to someone else.

    I do like the idea of asking about certain funds (you could even add a load fund into the mix - like Blackrock Global Allocation, just to not ask entirely about load funds) and seeing the reaction.
  • beebee
    edited May 2011
    Ideally, they take no market risk for their return. The market risk is all on the the investor. Spread these fees across lots of market risk takers (you, I and the next guy) and they have a nice risk free profit.

    Remember, they get their fee regardless of whether the market goes up or down.
  • Fee-based advisers can diversify away their selection risk by recommending different holdings to different clients, but they remain exposed to market risk. If the market as a whole declines, then their clients' portfolios, on average, decline. Since they're paid as a percentage of their clients' assets under management, the advisers' fees decline correspondingly.

    Fee-only advisers, paid strictly for services rendered (e.g. at an hourly rate) are not directly subject to market risk. Their clients, however, may be loathe (or eager) to seek more advice in a down market - this could indirectly subject fee-only advisers to the vagaries of the market.
  • Hi msf,,,agreed. Fee(profit) based advisers receive a higher dollar amount in good times but still are profitable in market down turns...just a little less profitable. No loss, just a little less profit.

    My point is that normal market risks for advisers has been minimized. We, as individual investors, make a decision to pay for these services or choose other options. Unfortunately, many retiree plans don't have choices. 403b plans, as one example, are chock full of fees and charges that chip away at an employee's investment and, in my opinion, are one more set of risks to overcome to be profitable. I believe I was one of the last to take advantage of the 9024 transfer before it was abolished by the insurance industry lobby. I'm afraid the 1035 transfer provision isn't far behind.

    We have way too many situations today where financial transactions are picked away at by small costs (fees, taxes, tolls, loads, etc.). It is called "dispersed costs and concentrated benefits"; a method of collecting small amounts of money from a very large base of individuals and pooling these profits into the hands of a very few.
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