Can you really get free and objective investment advice, when you pay investment sales loads? Excessive investment expenses are one of the most significant barriers to your family’s lifelong financial security.
Excessive investment costs are a plague on your personal financial planning. While financial services industry sales people tell you that you need to pay more to get more, the correct answer is the opposite. If you pay less, you are likely to get more.
Through intense competition, the investment industry pursues individuals who have money to invest. Industry sales representatives will try very hard to induce you to purchase their investment products and services. The terms “advice,” “counsel,” “recommendation,” “trust,” “relationship,” etc. are used constantly during this sales process.
Most individual investors have a great need for competent and objective investment advice. At the same time, they are suspicious and do not want to pay directly for advice of uncertain value. The industry has found a way to deal with these contractions. The industry directly compensates its brokers and many “independent” advisors who act as sales agents. Commissioned brokers and commissioned advisors promote their “advisory” services as being free and objective – the best of both worlds. They tell you that you are getting good advice without having to pay anything for this good advice. (See: The investment industry is not your investment partner)
In theory, only when you decide to act upon this allegedly good and objective advice will there be any cost. You will pay a supposedly reasonable sales load charge, when you purchase a recommended investment. Sales load charges take several forms: front-end loads, back-end loads, and/or higher expense ratios, including various combinations. (See: Understanding Mutual Fund Classes, NASD, January 14, 2003)
Ultimately, individual investors are the source of sales load-based investment advisor compensation, but the money flows indirectly. Concerning front-end sales loads, these fees are taken out of your initial investment. Load charge are routed through firms in the industry, and some but not all of your load charge will be paid to the broker or advisor who works directly with you. A substantial portion of sales loads are retained by industry firms to cover their costs and make a profit. (See: Financial planner and investment advisor compensation paid by third parties)
Furthermore, the industry will be gracious enough to offer you a supposed choice in this matter, when you buy mutual fund shares. You [...]