Brian,

Thank you for your post. You're right; he's done well on his own although the task is becoming more of a daunting task as he ages.

 You raised a good point that I frankly hadn't even thought of: "the ongoing trail fee to compensate the advisor." I was thinking of recommending that he use a commission-based financial advisor (a.k.a. "broker") who would handle the transaction for no fee other than the "commission" that A.F. would pay him. (I've already confirmed with A.F. that the broker would be compensated in this kind of transaction even though the customer doesn't have to pay a commission.)  I would think the broker/advisor would offer some continuing guidance even if no "ongoing trail fee" were involved. Is this unrealistic on my part?

 Thanks again for your thoughts. I"m still thinking...but leaning more toward suggesting he consolidate everything into one IRA at Vanguard and use a balanced, passive approach to ensure that he gets the full return of the market. I may suggest that he sit down with Vanguard for a free financial review. Still thinking about what would be best.

so many choices.

Hi,

The idea is not without merit...however since your friend has done well by himself with his investing choices. that kind of amount may allow him to leverage Vanguard and his other brokerage firm to independently evaluate his choices in relation to his temperament and goals (for free hopefully) and figure out how best to continue his investment journey towards the future.

He can also run the advice given against a similarly constituted AF portfolio to see how the risk/reward profile compare with what he already has on hand and the advice given by the various parties.

The more information one is armed with, the better the ability to make an informed decision as to whether this(the advisor thing) would be a step in the right or in the opposite direction.

Hope this helps.

Wayne.

Hiker. 

Oh and yes I would to answer your question!

Wayne.

If a broker sells a customer AF funds, is that the end of the transaction or is there an implied continuing trail of advising that the customer has paid for with the load (even if it was waived?) Just thinking about what a broker really does. Do they just close the sale and forget the customer?

HikerNC:

An old friend told me this week that he has three different IRAs, each worth just over a million. (His total in IRAs is over $3,000,000.) He's done well with noload funds but said he had always admired the American Funds family (other than the scandals of a couple of years ago.) He  has done pretty well selecting noload funds on his own and has his accounts at Vanguard, Fidelity and Wells Fargo Brokerage.

After speaking with him, the thought occured to me that he might benefit from establishing a relationship with a financial consultant and moving a million dollars of his IRA money into American Funds, to (1) get the professional help of an adviser, and (2) get American Funds Class A shares with no sales charge. (There's no commission on purchases of at least a million bucks.) My guess is that the financial consultant would be nevertheless be fairly handsomely compensated by A.F. for this purchase.

Do you think I should mention this idea to my friend? We are both aware that some financial consultants are much more professional than others and that some offer more than others to this kind of relationship. I don't want to throw my friend to the wolves of course.

I'm going to sleep on this before I say anything to him. What are your thoughts? 

If he invests $1M, American Funds will pay the brokerage $10k.  How much of that goes to the advisor depends on the advisor's contract with the brokerage.  The brokerage then gets 0.24% a year on A shares, which if the balance remains at $1M, would be $2400 a year (at least the A shares I own - I am not sure if this is true of all the funds).  If the NAVs of the funds increase over time and he is set up for dividend reinvestment, his investment would increase over $1M so the fees going to the brokerage would increase in total amount since the percentage would be of a larger amount. If he is old, I would consider not going with dividend reinvestment, BTW.

Whether or not a financial consultant would anything to the mix, that of course depends on the particular financial consultant.

My favorite American Funds right now are CAIBX, CWGIX, AEPGX and ANCFX.

Hiker,

All the information I provide is based on assumptions as well as facts in the prospectus and also some very helpful info supplied by Al.  So not everything I state may be 100% factual, its hard to really know without being an insider.

AF sells through advisors only.  So whoever the advisor on record is will get the 0.25% trail fee.  So yes this is kind of like a load and meant to compensate for selling the product and advise given.

Kcallie states the advisor/broker/dealer....whatever....will get 1% upfront.  I have no reason to argue against that.  I am not sure where she gets that info, and would love to know.  I try to read between the lines to discover what really happens.  The prospectus clearly states what these investments will cost YOU, but does not spell out how anything is kicked back or shared among AF, Dealer, Advisor...again whatever.  So reading between the lines......the prospectus states a 1% CDSC will be levied against any redemption prior to 1 yr on any shares bought load free with purchases of $1M or more.  So why do they do this?  Probably to recoup something they payed out upfront to the dealer, so this is why I say I cant argue with the 1% upfront, it is probably true and makes sense, although it may be less than 1%.  Kcallie where do get this info?  From your advisor?

So I think the answer to your question is .....yes the broker will get something upfront, even though your friend will not pay it, and will get a trail fee ongoing, that will come out of his investment dollars.  Therefore, he should be able to expect ongoing service and advice.

So the deal should not just be closed and customer forgotten about, although I am sure this does happen allot :o)

I agree with Wayne, you can probably get good advice from Vanguard and set up a simple portfolio that he can continue to manage on his own.  I say this because you have not indicated anything about AF funds or management that offers any special benefit to your friend, other than the advisor that comes with them.

I think for many people, it would make great sense to invest in AF if you can get them no-load.  It really depends on what your looking for.

Hope I have been helpful.

Good Luck

Brian

hurleyhuckster:

Kcallie states the advisor/broker/dealer....whatever....will get 1% upfront.  I have no reason to argue against that.  I am not sure where she gets that info, and would love to know. 

I am pretty sure that it is posted on their web site somewhere.  Maybe in a prospectus.  I will have to search around for the info.  Just give them a call - they will tell you the info over the phone if you call them.  I think they have to by law.

Correct Kcallie,

 Yep, the typical AF prospectus says they may pay dealers up to 1% for A-shares with no up front load.  I just dug this up after your post.

Also states, for B shares they pay 4%, and for C shares they pay 1%.  I dug this up after Al offered the info on the other post.  Its amazing how you miss this stuff!

Not sure why I care so much, not like it really matters to me, I guess I just get kind of anal and like to fully understand things and how they work.

for B and C shares, the CDSC allow them to recoup this money.  1% for C within one year, and the gradual reduction of CDSC for B shares, if you look at this it is clear they will get the upfront payment back and are not "out" anything.  If you hold the shares instead, the higher 12b-1 fee makes up the difference over time, prior to conversion.

However, for the A-shares bought at $1M, if they pay the full 1% and one sells right after the CDSC period of one year, then they actually lose money because they only got the 0.25% 12b-1 fee for A-shares and that assumes AF keeps it all.  This is why I doubt they give the dealer the full 1%, but I dont really know.  Who knows what kind of agreements they have!

Its crazy and just goes to show how complicated it all gets with loaded funds.  Its all a bunch of BS, you just dont see this crap with no-load funds.  One share class with out the 12b-1 gift that keeps on giving!  Ok, maybe two classes, but only because your willing to invest more at a lesser ER.

Again, I dont really care, I just find it interesting to disect this stuff.

Hope someone finds this interesting!

Brian