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.
Comments
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.
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.
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.
http://moneycentral.msn.com/investor/partsub/funds/purchinfo.asp?symbol=TEMWX
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 probably stands for Advisor.
Here is a quick description from SEC.
http://www.sec.gov/answers/formadv.htm
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.
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.
Remember, they get their fee regardless of whether the market goes up or down.
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.
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.