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The original fee charged by Schwab was somewhere around 25-30 basis points (I forget), and that was effectively "free" for new, small funds - because it would have cost them that much to manage the bookkeeping and distribution tasks themselves.
The article lists Janus as one of the families that are "prohibited from pricing their [directly sold] funds more cheaply even though it costs them less to service accounts held directly with them."
Bad example. If you buy directly from Janus, you get 'D' shares, which are cheaper than the 'T' shares sold through supermarkets. But Schwab et al. let Janus get away with this because Janus won't allow new shareholders to open an investment account directly with Janus. If you don't already have an account there, you're stuck with 'T' shares through a supermarket.
The actual rule, as I understand it, is that the cheapest open retail fund share class must be available NTF at the brokerage. This is a rule that originally only Schwab had. That's why you could get N&B's Investor class shares NTF at Schwab, but Fidelity (without this rule) only offered the slightly higher-priced Trust share class NTF (with its extra 0.10% 12b-1 fee).
The bottom line is that if you want the convenience of a supermarket, you'll either pay a transaction fee for it, or pay an ongoing fee which could easily cost you more. And if you buy direct, don't buy a fund that can be purchased NTF at a supermarket, because the higher fee is baked into your ER, even though you're not using the supermarket.
The bottom line is that if you want the convenience of a supermarket, you'll either pay a transaction fee for it, or pay an ongoing fee which could easily cost you more. And if you buy direct, don't buy a fund that can be purchased NTF at a supermarket, because the higher fee is baked into your ER, even though you're not using the supermarket.
Comments
The article lists Janus as one of the families that are "prohibited from pricing their [directly sold] funds more cheaply even though it costs them less to service accounts held directly with them."
Bad example. If you buy directly from Janus, you get 'D' shares, which are cheaper than the 'T' shares sold through supermarkets. But Schwab et al. let Janus get away with this because Janus won't allow new shareholders to open an investment account directly with Janus. If you don't already have an account there, you're stuck with 'T' shares through a supermarket.
The actual rule, as I understand it, is that the cheapest open retail fund share class must be available NTF at the brokerage. This is a rule that originally only Schwab had. That's why you could get N&B's Investor class shares NTF at Schwab, but Fidelity (without this rule) only offered the slightly higher-priced Trust share class NTF (with its extra 0.10% 12b-1 fee).
The bottom line is that if you want the convenience of a supermarket, you'll either pay a transaction fee for it, or pay an ongoing fee which could easily cost you more. And if you buy direct, don't buy a fund that can be purchased NTF at a supermarket, because the higher fee is baked into your ER, even though you're not using the supermarket.
Good stuff msf.