Question on American Funds Account

[kv968]

He didn't say they're no good because of high fees, he meant the fees don't make mathematical sense for the majority of investors - in comparison to A and C shares. You see A, B, and C shares have progressively higher yearly expenses. The higher in the alphabet you go, the higher your yearly expenses.

Given only those options, C shares are clearly better for short term investors. A shares are clearly better for long term. And B shares aren't really clear how the math works out. Just somewhere in the middle.

The FINRA site says to use an analyzer like: Fund Analyzer to compare. (But to be honest I'm not sure how to use it yet)

I don't know, but when he said, "B shares are not good for anyone in my opinion, and in my firm’s opinion. They charge 4% upfront, plus charge a penalty for withdrawal if during the first several years. FINRA, which is the self-regulatory organization in our industry, is thinking of making them obsolete for this reason" that sounds to me like even him and his firm think the costs are too high.

And C shares would be the best out of the bunch for short-term investors but even those shares charge a 1% back-end load on shares sold within the first year.

I checked out the analyzer you posted and it looks decent. I use the one at Morningstar but I'll have to check out a few funds with this one. Thanks.

[jpg7n16]

...that sounds to me like even him and his firm think the costs are too high.

Well kind of. Too high compared to what? You are comparing to a no-load, he was likely comparing to A and C shares.

"Why would you pay 4% up front, plus a deferred sales charge when sold, plus higher yearly expenses when you could just get A shares that charge 5-6% up front, have no backend sales charge, and lower yearly expense rates?"

That's more likely what HE'S saying. You're/our argument probably looks more like this:

"Why would you pay 4% up front, plus a deferred sales charge when sold, plus higher yearly expenses when you could just get no-load shares that don't charge up front, have no backend sales charge, and have low yearly expense rates?"

And C shares would be the best out of the bunch for short-term investors but even those shares charge a 1% back-end load on shares sold within the first year.

True - but again you're comparing to no-load, and he's comparing to ABC shares.

Which would you rather do if you knew you were looking to sell in 3 years:
A shares; pay 5-6% up front, 0% at the end, and 3 years of .15%/year 12b-1 fees? or
C shares; pay 0% up front, 0% at the end, and 3 years of 1.25%/year 12b-1 fees?

After 3 years: A shares - 5.45-6.45%; C shares - 3.75%

Therefore in a world that only offers A shares B shares and C shares, C shares are better short term than A.

He works for a company that pays commission on selling funds. We pay commissions on all sorts of things (cars, houses, ties, insurance, etc). They're just trying to make a living. And given what his firm has to offer, he's doing the best he can. But the abundance of no-load funds is really putting a damper on that business model.

It's like the car factory opened up to sell directly to the public with no comissions. Car dealerships will have real issues dealing with why their cars cost more than the factory's cars do. The answer is essentially the commission.

Nowadays, we can buy straight from the fund families instead of needing a middle-man mutual fund 'dealership.'

[esb3357]

What American Fund's Account did you use? We have two American Fund's Accounts and they are no loads. The 1% fee comes off the interest they make that year.

[kv968]

He works for a company that pays commission on selling funds. We pay commissions on all sorts of things (cars, houses, ties, insurance, etc). They're just trying to make a living. And given what his firm has to offer, he's doing the best he can. But the abundance of no-load funds is really putting a damper on that business model.

It's like the car factory opened up to sell directly to the public with no comissions. Car dealerships will have real issues dealing with why their cars cost more than the factory's cars do. The answer is essentially the commission.

Nowadays, we can buy straight from the fund families instead of needing a middle-man mutual fund 'dealership.'

I understand that everyone has to make a living and I'm not knocking it. I just find it funny how they how to make a big presentation out of whether or not an "A" share or "C" share would be the cheapest when neither of them are in the whole scheme of things. One might be cheaper than another in their world of only "American Funds" but as a whole they're all expensive.

A friend of mine is an advisor and has been encouraging me to take the appropriate certifications to become one also and pair up with him. That's something I would love to do since I'm always delving into anything financial and even help some people at work with their 401k's when asked. However he uses American Funds and I just don't think I can consciously sell someone a product like that when I know there are ones out there that are a lot cheaper. Not that they're bad funds, but there's a lot of others out there that are just as good for a lot less. Maybe if he was just a fee-only advisor...

Like you said though, that may be a dying business model anyway. I see that over the past couple of years American Funds has had the biggest outflow of funds amongst the major fund families. It may be just due to fact that people are tired of the stock market and getting out, but I have a feeling people are also realizing that they're paying more than they have to for their investments and either learning to do it on their own or going to a fee-based advisor instead.Or just sticking the money under their mattresses

[kv968]

What American Fund's Account did you use? We have two American Fund's Accounts and they are no loads. The 1% fee comes off the interest they make that year.

It's not the "account" that she's using, it's the class of funds that we're talking about. What class do you have? A, B, C?

[esb3357]

It was the no load group. I believe A.

[Petunia 100]

What American Fund's Account did you use? We have two American Fund's Accounts and they are no loads. The 1% fee comes off the interest they make that year.

American Funds is a load fund company. Perhaps you are investing through a 401k? Many include load funds, but you don't actually pay the load directly. Instead, all of the plan fees and costs are paid by either the employer, the employee, or some combination thereof. The fees are not transparent, most people don't have any idea how much they are paying.

[Petunia 100]

BTW, the reason the salesperson is steering you away from B shares is....American Funds no longer offers them.

Class B and 529-B shares
•American Funds no longer offers Class B and 529-B shares. Shareholders currently invested in Class B or 529-B shares will be able to hold them until the shares convert to Class A or 529-A shares. In addition, shareholders invested in Class B or 529-B shares may exchange those shares for Class B or 529-B shares of other American Funds offering such shares until they convert. However, no additional investments into Class B or 529-B shares will be accepted.

https://www.americanfunds.com/funds/classes/details.htm