How is the new advisor going to be paid???  If you do leave your American funds advisor I would tranfer the shares I already have "in kind" so I could preserve the ones I've already paid the load on which is a sunk cost and their e.r.'s are low.

Roberta 

kerryvan: '.....track record of better performance over 3 yrs. This is more obvious in bull markets, in bear markets it is difficult to judge.'

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kerry, I guess this is what is meant by "different strokes, for different folks" --- I think a bear market is EXACTLY where you see what kind of funds you have, and how good management is.  Any fool can make money in a bull market. (remember the old WSJ practice of throwing darts at the paper and investing based on which stock the dart landed on?)     If most of the gains made in a bull are given up in a bear, fund management has failed, and its time to go looking for someone who knows how to "play defense".   

So I would be much more interested in looking at funds NOW (with the market down about 20% ) which have held up well,  and would be looking to ditch those where management has demonstrated little or no ability to preserve gains.  I am much more interested in finding funds which outperform in a bear--- in a bull, the gains will take care of themselves.

"I don't mind paying front loads if they are justified based upon performance"

Keep in mind, the front load has nothing to do with the performance of the fund. The fund manager doesn't know, or care, that the new $$ that just became available to him to invest paid a load to the 'advisor' or not. Fund performance is determined by the buy-and-sell decisions of the fund manager, not the price of admission.

There's nothing wrong with the concept of paying an 'advisor' on the front end, if what you're getting is true advice. In fact, this should be expected by the investor. But what credentials does the 'advisor' have? What kind of advice is offered? Does the 'advisor' take into account all relevant personal financial matters when making a fund recommendation? Does the 'advisor' follow-up with portfolio analysis, performance metrics, allocation analysis and periodic rebalancing when analysis would indicate such?

But in reality, the dynamics of the front load are all wrong. It rewards those 'advisors' who are good at pitching a product (any product) to those least able to make informed decisions, and then quickly moves on to the next 'client'. The 'advisor' who makes the greatest dollar value of fund sales is the one who is paid the most, gets the biggest bonus and the best office. This kind of sales success often, but not necessarily always, occurs at the expense of the qualifty of the 'advice' given.

BruceM

I imagine that a lot of individual, small investors don't know it, but my broker told me that he is constantly being pestered by salesmen from the mutual fund companies who come around to peddle their funds. 

It's the same procedure followed by the drug companies who spend tens of millions of dollars each year sending thier salesmen to doctors to pitch their latest miracle drugs and hand out free samples along with free trips to Cancun or St. Barths.

There might have been a justification for loads back in the horse-and-buggy days before the internet.  But in the 21st century it's just plain nuts to pay a commission of up to 6% to the guy who sells you a mutual fund. Isn't he already drawing a salary?

Closed-end funds (CEF's) were the Big Thing in the Roaring Twenties--there were thousands of them--but only three or four survived the Depression. 

Then it was the turn of managed mutual funds with loads--sales commissions paid to your stockbroker. 

Next John Bogle at Vanguard revolutionized the mutual fund business in 1977 by selling the first no-load funds, and they became the Big Thing thanks largely to Schwab and others providing their no-load, no-fee fund supermarkets.

After that came indexed exchange-traded funds (ETF's), which are the current Big Thing.

And the next big thing? Managed ETF's.  The unfortunate Bear-Stearns launched the first managed ETF on March 25, 2008.  PowerShares now has at four of them.    And Morningstar published on this website on December 6, 2007, an article by Sonya Morris entitled "Will Active ETF's make Mutual Funds Obsolete?"

 The answer to your question, Sonya, is "Yes."  That is, until the next Big Thing comes along.

Jagor  

jagor:

It's the same procedure followed by the drug companies who spend tens of millions of dollars each year sending thier salesmen to doctors to pitch their latest miracle drugs and hand out free samples along with free trips to Cancun or St. Barths.

I don't know about the mutual fund industry but I know about the pharma industry in the US and handing out trips to Cancun and St. Barths is illegal and doesn't happen in this country.  A free lunch or a free pen you may get but that is it.  I don't know any physician (and I know tons of docs all over this country) who would prescribe a drug for a patient that wasn't indicated simply because of a pharma company free lunch or free pen (although, sadly, I do know some who are incompetent and prescribe the wrong drugs because of their incompetence).

bentley1:

I've been in American Funds for about 12 years and pay about 2.5% front load. An advisor recently told me I should think about switching to Vanguard and skip the sales fee. The only thing I get from the broker that set-up this account is an annual Christmas card-so advise isn't a factor. I've always thought that AF is a solid fund family and expenses are less so maybe the the front load is justified. Any thoughts on this?

Unless you are getting valuable advice from your financial advisor or you think you can't duplicate a load fund's performance with a similar no load fund, I don't think a 2.5% load is worth it.  There are lots of people who just don't have the time to research investments because they are too busy raising children, building a business, and/or developing their career.  For them, 2.5% is not a bad deal *if* the advisor's advice is good advice.

There are some American Funds that I hold that I think are worth a 2.5% front end load - CAIBX and ANCFX for instance.  Others really like CWGIX (which I own but am cautious about right now because of its extensive European holdings).  I am not sure that there are similar no-load options out there for these funds.  There may very well be, but I haven't researched it so I don't know.

    Front end or back end loads are nothing more that a rip-off of the uninformed small investor..  When you pay 6% to obtain a fund you are requiring that fund to earn 6% in one year just to break even. Where is the logic in that?  With the myriad of no-load funds available in the market why would anyone even consider a load?  Research by many independent investment entities show that there is no-none-nada growth advantage to loads over no-loads.

   Now anyone can give an example of a loaded fund that has excelled and use it as justification. If however you examine the holdings of that fund and search for a no-load invested in like positions you will find equal performance and have pocketed 6% to boost.
 

dblegl:

With the myriad of no-load funds available in the market why would anyone even consider a load?  

Because not everyone has the time or intelligence/skills to research the no loads and so they need a financial advisor.  I know many widows who never worked outside the home and don't use the internet who don't have the skills to research no loads.  I don't work for free, do you?  If they need an advisor, the advisor has to be paid somehow.

I also know many intelligent, highly educated professionals who don't have the time to do the research because of the demands of trying to balance a successful career with a quality family life and although they are perfectly capable of doing the research, they don't have the time.  I myself was one of these people just a few short years ago. 

Not everyone who has money to invest hangs out on the Morningstar discussion board, you know?  There are lots of crappy no-load funds out there that can lose you money, too.  So if you don't have the time/skills to do the research, a financial advisor is very helpful.

dblegl:

Now anyone can give an example of a loaded fund that has excelled and use it as justification. If however you examine the holdings of that fund and search for a no-load invested in like positions you will find equal performance and have pocketed 6% to boost.

First of all, the OP is paying 2.5%, not 6% so why you are quoting 6% I don't know.  Please name me the no-load equivalent of CAIBX, CWGIX and ANCFX so that I can invest in them.  Thanks.
 

Sorry, but let me offer a couple of corrections:

"When you pay 6% to obtain a fund you are requiring that fund to earn 6% in one year just to break even"  Actually, its a bit higher. Lets say you start with $100 investment and pay the 'advisor' $6, leaving you with $94 to invest. The required rate of return to get back to $100 is 6/94 = .6.38%

"Because not everyone has the time or intelligence/skills to research the no loads and so they need a financial advisor."  Yes, but are they paying for a 'financial advisor' or a salesman? As per my post above, what qualifies this salesman to call themselves a 'financial advisor'? What are his credentials? Is he taking into account all relevant factors of the individuals financial condition in making investment advice?

I don't invest in MF's, but I'm sure there are others who will point out multiple no-load funds that are consistance top performers, such as DODGX. But in any case, the load has nothing to do with the fund's performance...only the investor's performance.

BruceM

orygunduck:

Sorry, but let me offer a couple of corrections:

"Because not everyone has the time or intelligence/skills to research the no loads and so they need a financial advisor."  Yes, but are they paying for a 'financial advisor' or a salesman?

I don't invest in MF's,
BruceM

Although technically correct, the response missed the target of the orignial post.

Load funds can offer performance that other funds do not offer,  or other funds are not available.  The post did not say they were purchasing a fund using an advisor, just funds that are "a" shares..  not the "c" shares...

Over time "c" shares will cost more,  hence lower performance for a buy and hold type purchase.  "b" shares will convert to "a" shares after a period of time, and is higher cost or has a higher annual fee for this period,  which may be 5-10 yrs..

A number of the global EM funds are in the front load catagory, less than 5% load....  Take LETRX, with a 3 yr ave of 44% and a 5 yr ave of 38%,  okay, it cost me 5% initially, so I have 1 of the 5 yrs at 33%, the other 4 yrs at 38%..    Or take EMGIX, India fund, 44% 2005, 35.7% 2006, 54% 2007...

 I'll take