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Reader Comment on Brokers
By JLP | November 9, 2006
A reader just left the following comment regarding my Broker Question of the Day post from last week:
The reader is uninformed. 4 % verses 4.5% doesn’t take in consideration the internal cost which is higher on others shares vs. A shares. Writer shows his lack of sav. In respect to the trips, my rep is rewarded for diversifying my port not for the amount of funds he sells. You should look into the facts further. Except for its clients, I don’t think Edward Jones explained this so I agree with Mr. Weddle’s quote. All the real fact were not exposed in the press because Jones was censored by regulators (govt).
Here’s the part I want to focus on:
“The reader is uninformed. 4 % verses 4.5% doesn’t take in consideration the internal cost which is higher on others shares vs. A shares.”
Folks, I have NEVER seen proof of this. This sounds like the stuff brokers are told to say as a way to handle objections.
To be fair, if anyone has proof that internal costs are higher no-load funds, send it to me and I’ll publish it. Until then, I’m not believing it.
Topics: Mutual Funds | 3 Comments »
November 9th, 2006 at 2:12 am
“4% verses 4.5% doesn’t take in consideration the internal cost which is higher on others shares vs. A shares”
This part could be true, IF the fund family paying higher commission is American Funds, which has lower expense ratio than other typical broker-sold funds. We are not talking about load vs no-load funds here. Brokers sell load funds, period. That’s how they get compensated. If someone doesn’t know how to buy no-load funds or doesn’t want to make their own decisions, buying American Funds from a broker is not bad, even if the broker gets a higher compensation from American Funds than say from Van Kampen.
November 9th, 2006 at 12:06 pm
What the commenter is referring to is the expense ratio, including 12b-1 fees, of A shares vs. B shares. In this case, the A shares are almost always cheaper than the B shares. I think your example wasn’t meant to say A shares vs. B shares, rather MF X vs. MF Y, correct? In other words, two totally different MFs, but one pays a higher broker commission.
So, I agree with you, but I understand the commenter’s confusion.
November 9th, 2006 at 12:13 pm
LA Money Guy,
Geez! I didn’t even think about that wording being confusing. I went back and changed the A and B to 1 and 2.
Thanks!