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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Frazzled over mutual fund fee
Dear Dr. Don,
I recently invested at a local bank $50,000 in
a mutual fund (Franklin income). I was charged a $1,800 fee. Is this
normal for this kind of fund?
Violet Virulent
Dear Violet,
Banks aren't just for banking any more. Banks offer a full array
of financial services to their clients, typically through brokerage
businesses owned by the bank holding company.
Mutual funds aren't bank products, meaning that the investment
isn't FDIC insured and the financial services representative selling
you the fund is working for the brokerage firm and not the bank.
An investor that purchased shares in a stock mutual fund with a
front-end sales load (commission) typically pays from 4.75 percent
to 5.75 percent commission on that purchase. From your numbers you
paid 3.6 percent in fees.
According to Morningstar,
about 87 percent of Franklin Templeton mutual funds charge a sales
load. The prospectus you received prior to purchasing the investment
specified the sales load and the annual expense ratios for the fund.
The financial services representative should have done that as well.
A sales load is one way to pay for a financial adviser's
time in providing you with an investment recommendation. Proponents
of front-end sales loads feel that it's better to pay the fee upfront
with the Class A shares rather than pay higher annual expense ratios
in B or C class shares. This Bankrate feature has more on the different
classes of mutual fund shares: "The
ABCs of mutual fund fees."
-- Posted: May 11, 2004
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