Investors Want To Hear More On Fees And Conflicts, CFA Institute Reports

Bradengl, one-million-dollar accounts should not be invested in mutual funds. They should be investing in individual securities. Maybe some of the portfolio will be in an index portfolio, but the majority should be directly in stocks and bonds. Clients can get in their own mutual funds.

I have fairly detailed discussions on "how I get paid" with every client before I let them become a client. I show them the costs of "assets under management" in a fee arrangement, and then the various share classes under a load arrangement including the break points. As we all know most fee managers won't accept a new client with less than one million in assets under management. We all also know that the sales charge on a one million dollar mutual fund investment is ZERO. When the adviser's fee is removed from the investment portfolio that is a taxable event so even using class C shares which have a similar 1% 12B1 fee at least the charge is not a taxable event since it is part of the operating expense of the fund. Now to the simple math involved; even if the investor starts out with an invested dollar amount that incurs the full sales charge (no break point) the break even between that class A sale and a Class C or fee managed transaction is around the 5th year at a reasonable rate of return on investments. As long as a fund company is used that has a full assortment of funds available so every future adjustment to that client's portfolio in the future is done without any new transaction fees and the adviser that serves that client gets paid a portion of the 0.25% 12B1 fee to handle the client. Most of my almost 1500 clients have been with me for well over a decade and not one of them chose fee management or class C shares once they understood how they pay for service. With a client base like mine almost all additions are generational that start out with college plans and then at around age 14 add in "guardian Roth IRA" for their children at $500 a year. The typical fee manager would not be bothered with doing a guardian IRA since it does not pay anything. I used to attend the FPA conventions for years so clearly understand the difference between what fee managers say between themselves and in the magazines that serve them and what they tell their clients.