When it comes to mutual fund investing, we're cheapskates. We know that every one-tenth of one percent a mutual funds charges in fees means less money that mutual fund will make our MAXadvisor Powerfund Portfolio subscribers and MAXadvisor Private Management clients over the long haul.
This example from the securities and exchange commission website illustrates how much fund expenses can affect returns: If you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, after 20 years you would have about $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858 - an 18% difference.
So when a guy makes a great argument for eliminating the dubious and oft-abused 12(b)1 fee, we're all ears:
The 12(b)1 mutual-fund fee should be eliminated, just like fixed brokerage commissions were more than three decades ago.
As additional charges levied on mutual-fund shareholders, 12(b)1 fees were introduced in 1980 to help companies pay for marketing and distribution expenses. Yet over time, this revenue, which diminishes your total return, has been directed to brokers and other marketers.
'Does the fee do anything to help the consumer? Absolutely not,' says Jeff Seymour, managing director of Triangle Wealth Management LLC in Cary, North Carolina. 'Most of the time it's a 0.25 percent annuity for doing nothing.'
'What's worse is that sometimes 12(b)1 fees are a full 1 percent annually,' Seymour says. 'The broker-salesperson has no obligation to do any work for that revenue stream. This income is on top of any commission or asset-management fee.'
Unless lobbying by the industry manages to save it, the fee may be cut by the U.S. Securities and Exchange Commission, which is reviewing it.
'The transformation of the 12(b)1 fee from a distribution subsidy to a sales load in drag is now so nearly complete that the primary purpose to which the $11 billion in 12(b)1 fees last year were put was to compensate brokers,' Christopher Cox, chairman of the SEC, said on April 13 at the Mutual Fund Directors Forum in Washington."
Of course, there's more to frugal fund investing than simply buying those that don't have a 12(b)1 fee. Be sure to check our MAXrating: Expenses on each fund's data page for the simplest way on the web to tell if a fund you're thinking about investing will cost you too much.
When it comes to mutual fund investing, we're cheapskates. We know that every one-tenth of one percent a mutual funds charges in fees means less money that mutual fund will make our MAXadvisor Powerfund Portfolio subscribers and MAXadvisor Private Management clients over the long haul.
This example from the securities and exchange commission website illustrates how much fund expenses can affect returns: If you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, after 20 years you would have about $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858 - an 18% difference.
So when a guy makes a great argument for eliminating the dubious and oft-abused 12(b)1 fee, we're all ears:
The 12(b)1 mutual-fund fee should be eliminated, just like fixed brokerage commissions were more than three decades ago.
As additional charges levied on mutual-fund shareholders, 12(b)1 fees were introduced in 1980 to help companies pay for marketing and distribution expenses. Yet over time, this revenue, which diminishes your total return, has been directed to brokers and other marketers.
'Does the fee do anything to help the consumer? Absolutely not,' says Jeff Seymour, managing director of Triangle Wealth Management LLC in Cary, North Carolina. 'Most of the time it's a 0.25 percent annuity for doing nothing.'
'What's worse is that sometimes 12(b)1 fees are a full 1 percent annually,' Seymour says. 'The broker-salesperson has no obligation to do any work for that revenue stream. This income is on top of any commission or asset-management fee.'
Unless lobbying by the industry manages to save it, the fee may be cut by the U.S. Securities and Exchange Commission, which is reviewing it.
'The transformation of the 12(b)1 fee from a distribution subsidy to a sales load in drag is now so nearly complete that the primary purpose to which the $11 billion in 12(b)1 fees last year were put was to compensate brokers,' Christopher Cox, chairman of the SEC, said on April 13 at the Mutual Fund Directors Forum in Washington."
Of course, there's more to frugal fund investing than simply buying those that don't have a 12(b)1 fee. Be sure to check our MAXrating: Expenses on each fund's data page for the simplest way on the web to tell if a fund you're thinking about investing will cost you too much.
LINK
See also:
Are You Paying a Sales Load?
Fund Fee Primer