Supermarket fees for mutual funds - redux

msf

Seems every year or two a thread along this line comes up, discussing how much funds pay the supermarkets to participate either NTF or TF. I ran across a sizeable M* column from two years ago that goes into detail.
Morningstar, NTF Platforms Can Mean Higher Costs (November 6, 2014)

Highlighting a bit of the column: "Oddly, those fees have gone up since the 1990s ... despite the fact that technology has made servicing fund accounts much cheaper. ... Indeed, NTF fees may have risen to compensate for declining trading revenues".

Let me quantify that a bit. Schwab OneSource (NTF) started in 1992. At the time, Schwab charged 0.25% (sometimes as much as 0.35%) That actually made economic sense for boutiques that couldn't service directly sold accounts for less. Not for Vanguard of course, but for many smaller funds.

Over time, the rates rose. According to the WSJ, in 2003 Schwab's typical fee, which had already risen to 0.35% was raised to 0.40%. In addition, Schwab started charging TF funds for the first time. The original fee was $20/account/year. The article goes on to note that families like Longleaf and Yacktman balked (so they were closed to new investments). But Schwab didn't impose the fee on Fidelity or Vanguard.
WSJ, Schwab Fees Steer Some Funds to the Exits, Others Get a Pass (May 5, 2003) - link is google search, pick first result.

Today, the fees are even higher. NTF fees are typically 0.40%, but can go as high as 0.45%. TF funds now typically pay 0.10% (but as high as 0.25%) per year in addition to the aforementioned $20/account/year (which can go as high as $30).
Schwab Compensation Disclosure

IMHO this is a lot to pay for convenience. These days, I'll buy what's cheapest, with convenience being secondary. How hard is it to purchase/sell via ACH? So that might mean buying directly from the fund or paying a TF to come out cheaper in the long run. The only time I buy NTF funds is when I like the fund and can live with the ER (and the fund can't be purchased more cheaply by buying direct).

Older thread on same topic:
http://mutualfundobserver.com/discuss/discussion/15542/how-much-do-fund-companies-pay-to-be-on-fund-supermarket-platforms

Sven

IMHO this is a lot to pay for convenience. These days, I'll buy what's cheapest, with convenience being secondary. How hard is it to purchase/sell via ACH? So that might mean buying directly from the fund or paying a TF to come out cheaper in the long run. The only time I buy NTF funds is when I like the fund and can live with the ER (and the fund can't be purchased more cheaply by buying direct).

Thanks for bring this to our attention. Unless there are real compelling reasons, I have gradually moved away from NTF funds in the past 10 years, and some are already high to begin with. For sure these discount brokerages want their piece of pie or two.

expatsp

Wow, thanks for this, MSF, I'd naively assumed that the 0.25% 12b fee was all that NTF funds paid on Schwab. But it seems like the transaction fee funds have the same ER whether on Schwab or directly at the company, so I guess the fund company is swallowing Schwab's fee.