Factchecking my financial advisor on mutual funds

December 30, 2004 9:40 AM

I am presently working with a financial advisor to select mutual funds for my retirement plan. He has explained the differences between Class A, B, and C funds to me, and also suggested that Class A is probably the best option. Is he correct? [more inside]

I don't expect to frequently shift fund selections, but the idea of keeping all of the same selections for five years does not seem right.

posted by ajr to work & money (13 comments total)

A lot of funancial advisors are sharks. You'll be much better off if you educate yourself. A couple of good books are The Only Investment Guide You'll Ever Need by Andrew Tobias and The Four Pillars of Investing by William Bernstein. You may also learn something by doing a little investment research for yourself. Vanguard has a consumer friendly investment site with an approach to financial products I personally like. Browse through there and you'll learn something.
posted by Nelson at 9:52 AM on December 30, 2004

As long as you move between funds of the same family, moving from one A share to another another A share of the same family will not result in a new load. If this is your objection to A shares, than it's unfounded. Apologies if I misunderstand you.
posted by Kwantsar at 9:52 AM on December 30, 2004

mutual fund class distinctions
posted by leotrotsky at 9:54 AM on December 30, 2004

Also, one could make a good argument that it's immoral to get a free education from a financial professional and then turn around and buy funds from a direct seller. If you choose to follow Nelson's advice and wish to be an ethical consumer, don't take another minute of your advisor's time.
posted by Kwantsar at 9:56 AM on December 30, 2004

Here's an article from the Motley Fool about mutual funds. Pay close attention to the section on Index Funds. If your employer's mutual fund does not offer an index fund, go bug them until they do.
posted by matildaben at 10:12 AM on December 30, 2004

Also, one could make a good argument that it's immoral to get a free education from a financial professional and then turn around and buy funds from a direct seller. If you choose to follow Nelson's advice and wish to be an ethical consumer, don't take another minute of your advisor's time.

Does that theory apply across the board? If so, then everyone better stop shopping around for the best deals they can get on anything. No more going from car dealer to car dealer to get a better price. No more taking up appliance salesmen's time when buying a new fridge and range. How about those realtors? Better not try to get the best and least costly representation when you try to sell your house.

Puuuuhhhhhlllleeeeeeeeeeeezzzzzz!!!!!!!!!!

Financial advisors are no different than any other person out there shucking a product.
posted by Juicylicious at 10:22 AM on December 30, 2004

matildaben brings up something I hadn't considered.

You wrote "retirement plan" in your post. If this is an employer sponsored plan, like a 401(k) or 403(b), you probably shouldn't be paying loads at all. If this is a personal plan like an IRA, be sure that you are exhausting low-fee (and oft-subsidized) employer-sponsored plans available to you.
posted by Kwantsar at 10:24 AM on December 30, 2004

If you don't see a substantive difference between haggling over a car price and asking someone to craft a comprehensive wealth-management strategy that includes selecting suitable investments and registrations within a framework that adheres to the principles of tax, estate, income, retirement, and education planning, then I won't bother to argue with you.
posted by Kwantsar at 10:39 AM on December 30, 2004

Good lord, don't pay a front end load for any mutual fund. Unless you're buying something very esoteric you can find a similar investment for cheaper elsewhere. If you're doing a basic retirement plan you don't need anything esoteric.

And while Kwantsar is right that you shouldn't waste an advisors' time (or yours!) if you're not going to be his or her customer, don't feel bad. The advisor will be just fine, particularly if he's getting a nice kickback of the front-end load on the funds he's telling other people to buy.
posted by Nelson at 10:41 AM on December 30, 2004

Thanks guys. This has been really helpful. FWIW, I just rolled three 401(k)/Simple plans into a single IRA, so that I could more easliy manage things. And don't worry Kwanstar, the advisor is being paid for his efforts, I just wanted a second opinion.
posted by ajr at 11:01 AM on December 30, 2004

the advisor is being paid for his efforts

Well, someone - if not the advisor, then someone he probably has a close working relationship with - is going to benefit from his recommendation to buy Class A shares:

"Class A shares impose a front-end sales charge at the time of your purchase"

The larger question is why you're even looking at investing in high-fee mutual funds, as opposed to (say) an index fund with low, low fees. You might want to read "The real trouble with mutual funds", by Henry Blodget, at slate.com. [Critical point: "active money management—aka stock-picking, the strategy employed by most funds—doesn't usually work" - but that's what your fees are going to - as well as profits, of course.]
posted by WestCoaster at 11:45 AM on December 30, 2004

There really is no difference Kwanstar. The salesperson who spends hours with a customer, helping him/her select a vehicle that will fullfill his/her needs and fit into his/her budget works on commission just like financial advisors. It's no different to that guy on a car lot when he spends hours educating a customer only to have them buy at another lot because they could save a few dollars. The car salesman doesn't like it, but he knows that it's all part of the business. I would think that financial advisors would know that too.

I've learned the hard way after paying a large front load on some investments. I won't be doing that again.
posted by Juicylicious at 12:19 PM on December 30, 2004

Kwantsar, Juicylicious is absolutely correct. Financial advisers can stop answering a customer's questions at any time. Like every other consulting profession, there is balance to be drawn between billable time and non-billable time in the service of existing and potential customers. Financial advisers should be glad they don't have to go as far as preparing responses to technical RFPs to land a client.
posted by McGuillicuddy at 6:19 PM on December 30, 2004