John Waggoner at USA Today looks at the wacky past and current state of affairs of the oddly-named mutual fund 12b-1 fee.
The American Funds' Growth Fund of America A, for example, which is the nation's largest fund, weighing in at $85 billion in assets, doesn't exactly need to jack up its marketing efforts to attract more assets. Yet that fund charges a 12b-1 fee of 0.25% — nearly as much as its other fees combined. The American Funds says the fee goes to servicing accounts.
The 12b-1 fee is also at the heart of the bewildering multishare class system we have today. In many cases, 12b-1 fees have morphed into a way to indirectly pay a broker's commission.
Funds discovered that people don't like to pay commissions on mutual funds. So they used the 12b-1 fee to make the brokerage charges more palatable and less transparent.
A particular mutual fund might have three share classes. Each share class represents the same portfolio but has a different expense structure."
For those looking for a brief history into the nature and causes of mutual fund 12b-1 Fees, it’s a must read.
An interesting factoid from the article: the entire mutual fund business had less money in total assets in 1980 than in 1972. Now THAT’S a rough market environment. No wonder everybody was buying gold – they plum gave up on stocks ( gold is still down from 1980 and stocks are up well over 20-fold). Today total mutual fund assets are much higher than the market peak of 2000 - even though the S&P 500 just broke its old record set in 2000. Fund investors are just more forgiving these days.
John Waggoner at USA Today looks at the wacky past and current state of affairs of the oddly-named mutual fund 12b-1 fee.
The American Funds' Growth Fund of America A, for example, which is the nation's largest fund, weighing in at $85 billion in assets, doesn't exactly need to jack up its marketing efforts to attract more assets. Yet that fund charges a 12b-1 fee of 0.25% — nearly as much as its other fees combined. The American Funds says the fee goes to servicing accounts.
The 12b-1 fee is also at the heart of the bewildering multishare class system we have today. In many cases, 12b-1 fees have morphed into a way to indirectly pay a broker's commission.
Funds discovered that people don't like to pay commissions on mutual funds. So they used the 12b-1 fee to make the brokerage charges more palatable and less transparent.
A particular mutual fund might have three share classes. Each share class represents the same portfolio but has a different expense structure."
For those looking for a brief history into the nature and causes of mutual fund 12b-1 Fees, it’s a must read.
An interesting factoid from the article: the entire mutual fund business had less money in total assets in 1980 than in 1972. Now THAT’S a rough market environment. No wonder everybody was buying gold – they plum gave up on stocks ( gold is still down from 1980 and stocks are up well over 20-fold). Today total mutual fund assets are much higher than the market peak of 2000 - even though the S&P 500 just broke its old record set in 2000. Fund investors are just more forgiving these days.
More startling, American Funds Growth Fund Of America Class A (AGTHX) alone has more money in it today than the entire fund business was managing back in 1980.
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