Load vs Non Load

[jimmyengland]

Hello All,
Can anyone tell me if there are any advantages that load funds offer vs no load funds. To me it doesnt make any sense to invest in load funds. Please can anyone explain this. Thank you for your help.

[Broken Arrow]

My conspiratorial opinion is that loads is just there for the fund managers to make money.

I agree it doesn't make any sense to invest in load funds, especially if you can find no-load alternatives that yields similar results.

That said, I also think loads are only one of several factors one should weigh when considering a fund. Sometimes, there's nothing wrong with paying a premium for a premium product that offers superior value. (That is, assuming that what you have is indeed one of those rare gems that offer a superior value.)

[lucasrd]

some specialty funds, like BRIC funds, or some emerging market funds cost more to trade and research those markets...so i'll pay higher fees...but I don't ever pay loads

[jIM_Ohio]

Anyone spending time researching the decision should probably buy no load funds (because they are willing to do the research).

Some people are quite busy and need a professional advisor to make their decisions and do their research for them. The sales load is a way of the investor compensating the advisor for advice.

[disneysteve]

Anyone spending time researching the decision should probably buy no load funds (because they are willing to do the research).

Some people are quite busy and need a professional advisor to make their decisions and do their research for them. The sales load is a way of the investor compensating the advisor for advice.

Jim, I don't understand your response. Isn't a no-load fund manager doing the same research and stock-picking that a load fund manager is doing?

[Scanner]

Loaded funds tend to be less volatile as traders won't trade loaded funds but they'll hop in and out of no-load funds.

That being said, since the advent of ETF's, I imagine the volatility problem has been reduced.

If trader wants to get in and out of the S&P 500, they'll more than likely use SPDR vs. VFINX.

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I would imagine what JimOhio meant is the financial advisor is determining asset allocation and matching it with client's risk - the sales load is a way of compensating.

I wouldn't mind a second career at financial advising. . .but I just couldn't do that all day - stick people in loaded funds.

[disneysteve]

I would imagine what JimOhio meant is the financial advisor is determining asset allocation and matching it with client's risk - the sales load is a way of compensating.

Forgive my ignorance on the topic, but is going through an advisor or broker the only way to buy a load fund? Can you not deal directly with the company, as with Vanguard or Janus or Fidelity?

[Scanner]

Sorry. . .I guess you could. At Schwab, they have loaded funds you can buy as well as no-loads.

Now. . .I can't fathom a reason there why anyone would be in a loaded fund.

I wish there was a way to simplify the advising process. When I was revamping my sister's portfolio. . .I didn't mind seeing the loaded funds as much as it seems high expenses and high loads seem to run in tandem.

Not always. . .as someone pointed out - international funds, emerging markets, even the alternative energy funds I was looking into have high expense ratios. . .but I saw no reason why my sister should have to pay a load (the advice) and then pay a 2.5% expense ratio on top of it for a large cap fund (this was through Putnam).

[jIM_Ohio]

Jim, I don't understand your response. Isn't a no-load fund manager doing the same research and stock-picking that a load fund manager is doing?

No- some funds are sold only through sales channels.
No- some funds are sold through both brokerages and sales channels.

The salesman is not picking stocks (series 7), he is recomending mutual funds (series 6 and or 63). The licenses to do these things are not the same.

Think of a high profile doctor or lawyer which has money to invest (say 20-40k per year) and does not want to dabble in individual stocks or learn about asset allocation, DCA, indexing, fund expenses etc... He can hire a financial advisor (series 6) to pick mutual funds for him.

More than likely these will be A or B shares. A shares carry around a 5.75% sales charge (so if 40k is sent in, the broker made $2300). B shares have a back end load which requires person to pay the commission on the sale.

An example fund which might be used for either sales channel or direct are American funds. Some fidelity funds and some T Rowe funds are sold thru channels. In Fidelities case it's the same ticker, in T Rowe's case the fund is the same, but ticker changes because the sales channels are through a different fund family (wrapper).

One managed fund I have found which is a load fund, but a little different, is Manager's first quadrant. I think you can only get this through a salesman.

MFQTX
MFQTX: Profile for MANAGERS AMG FQ TAX MANAGED U S - Yahoo! Finance

[Scanner]

Jim,

Do you work in the financial world?

I must admit, I have always fantasized about a second career in the financial advising world but I hesitate to think that the job would be 98.5% cold calling sales and 1.5% financial planning/advising.

If you work in the world, could you speak to a career in it, the pros and cons?

(sorry if I hijacked the thread, OP)

[jIM_Ohio]

I would imagine what JimOhio meant is the financial advisor is determining asset allocation and matching it with client's risk - the sales load is a way of compensating.

I wouldn't mind a second career at financial advising. . .but I just couldn't do that all day - stick people in loaded funds.

You can be a fee only advisor and charge a flat rate, then tell people to go to Vanguard or T Rowe Price.

More than likely I am going to leave my day job and switch over to financial planning for a career. I can see 3-4 ways to make money

1) doing people taxes
2) helping with tax planning, retirement planning, college planning
3) choosing investment choices for customers
4) helping customers get out of debt

The primary issue is 3 and 4 in particular have lots of free advice available. Some good too. Meaning it is tough to make money when you have to compete with free.

2 is where most people think the money is, I think it's at 1). Need to be able to handle the 1040 long form and understand taxes. This way you know how to do 2) well and can show client the value.

My wife consults for 401k enrollment (her company has a 401k product they offer clients). I have thought that I could get some money off that (doing education seminars for 401k enrollment and financial planning seminars).

There is also money to be made creating a withdraw plan.

If someone has 100% of assets in a 401k, they need a different plan than someone which has 50% in 401k, 25% in Roth and 25% in taxable accounts.

[jIM_Ohio]

Sorry. . .I guess you could. At Schwab, they have loaded funds you can buy as well as no-loads.

Now. . .I can't fathom a reason there why anyone would be in a loaded fund.

I wish there was a way to simplify the advising process. When I was revamping my sister's portfolio. . .I didn't mind seeing the loaded funds as much as it seems high expenses and high loads seem to run in tandem.

Not always. . .as someone pointed out - international funds, emerging markets, even the alternative energy funds I was looking into have high expense ratios. . .but I saw no reason why my sister should have to pay a load (the advice) and then pay a 2.5% expense ratio on top of it for a large cap fund (this was through Putnam).

Most brokerages, to my understanding, charge the load the fund charges and keeps the load as the transaction fee.

[Scanner]

Another way to make money - sell mortgages when your clients refinance. Just about all brokerages have banks associated with them and mortgages are cash cows.

PS: With regards to helping people get out debt not being profitable - I agree. However, there's your loss leader as they say in the business. If you hold seminars, have a weekly e-zine/email, on gettign out of debt. . .a certain percentage will come to you for the traditional financial planning.

A seminar entitled:

My Finances are a Wreck: Please help me. I would think would have a draw.

In fact, I think debt reduction is a sore point missing in financial planning. IMO, an extra payment on the mortgage or paying down a chunk of student loan is essentially the same as buying a few bonds. . .however. . .who makes a commission that even though it may make sense?

[disneysteve]

No- some funds are sold only through sales channels.
No- some funds are sold through both brokerages and sales channels.

So if, in the course of my own research, I discovered a load fund that I wanted to add to my portfolio, I would have to pay a sales person in order to get that fund even though that person will have done absolutely nothing for me.

Makes no sense at all. I guess that's why I don't buy load funds.