Dear Dr. Don,
I have $25,000 I want to invest with a financial adviser. Class A shares seem to be cheaper with time, but if I invest $5,000 in five funds, A shares do not make sense because my investment in each fund is too low to qualify for a breakpoint, a reduction in fees. Class C shares then, right?
-- Glenn Guidance
Dear Glenn,
The Securities and Exchange Commission primer "Mutual Fund Classes" provides a nice overview on the topic and includes a link to the Financial Industry Regulatory Authority's publication "Class B Mutual Fund Shares: Do They Make the Grade?" The FINRA publication also includes a link to its "Fund Analyzer," which lets you compare the costs of the different share classes over a holding period.
While I fully support a financial adviser being compensated for the client services provided, I'm not a big fan of paying the adviser a sales commission on the purchase of a mutual fund -- whether that's by buying A, B, C or any other class shares. I'd rather see a fee-only, assets-under-management or retainer approach to paying the adviser for his or her services.
Paying up for investment management services is one thing. Paying up for being sold a mutual fund is another. A nice no-load mutual fund with sound investment management would get you out from under the decision of what class shares to buy in a load-based (i.e., commission-based) mutual fund.
Access to some successful investment managers requires you to "pay to play" by buying shares in a load-based mutual fund. I'd rather see you look for investment management talent in an environment that doesn't require you to pay the salesperson to gain access to the investment manager.
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