Author Topic: American Funds - Adviser Fees  (Read 2407 times)

Lifeblood

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American Funds - Adviser Fees
« on: April 01, 2014, 03:16:20 PM »
I am trying to understand how my independent financial adviser makes money off of my ROTH-IRA with AmericanFunds (AF), as I don't see any obvious signs of fees from my statement, other than a $10 annual fee. When I purchase new shares, as I did recently through a roll-over from a 403-B (pre-MMM, mind you!), I paid a sales charge of about 4.5%. Does AF pay my adviser some of this amount as a commission? Any ideas on how much?

This is but one of several questions I have as I seek to gain control of my investments - please refrain from face punching until I have asked all of them!

Frankies Girl

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Re: American Funds - Adviser Fees
« Reply #1 on: April 01, 2014, 03:38:58 PM »
Your "independent" adviser gets a commission from the funds he/she recommends if you aren't paying them for advising you (a fee only adviser would expect a few hundred for sitting down with you and figuring out a good plan and recommendations). You didn't really think they were doing this out of the kindness of their heart, right? ;)

Most of the fee structure is built into the funds themselves (they get a chunk of that front load, and probably a little taste from that expense fee as long as they keep you as a customer) so you won't really see the money coming out, but they are most definitely getting a cut. This means they have a big incentive to push you to invest in funds that are going to pay them, and those funds may not be the best choice for YOU. I wouldn't use this adviser again, as American Funds in general are not a great investing choice. They tend to push their front load (class A shares I believe) on most of their offerings, so you're paying a crazy amount up front to buy into the fund, and then getting hit with a high expense fee many times as well, and they just don't perform well enough to justify that expense.

To see what you're paying for expenses, look for the "returns and expenses" link, and then the "Expense Ratios" section. One I used to be in was called Washington Mutual Investors Fund. The class A shares have a high expense ratio of .62%, but it's better than their class B at 1.37%, but I sold off as soon as I figured out that there were much better options at other financial institutions.  Still felt like an idiot once I realized what the stupid front load was in reality - paying for the "privilege" of being in a fund is a bad idea, even if they say it is better performing or lower expense, it's all relative - lower than sky-high is still high.

Start figuring out your investing plan, and think seriously about rolling that Roth over to someplace like Vanguard or even Fidelity (using their low cost Spartan series) where you can invest in index funds with really low expenses.

And if you haven't already seen Jim Collins' stock series, check it out:
http://jlcollinsnh.com/stock-series/

« Last Edit: April 01, 2014, 03:40:31 PM by Frankies Girl »

Another Reader

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Re: American Funds - Adviser Fees
« Reply #2 on: April 01, 2014, 03:47:41 PM »
If you had access to American funds in a work-related retirement account where the load was waived, the expense ratio might be worth paying on a couple of their long term performers.  However, there is zero reason to pay a front end load for a quality mutual fund, managed or passive, in an IRA.  Thank your advisor, and move your money to Fidelity or Vanguard.  You will get much cheaper funds of equal quality with a little research. 

Zamboni

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Re: American Funds - Adviser Fees
« Reply #3 on: April 01, 2014, 04:39:33 PM »
I agree with Another Reader, and I feel your pain because I once got sucked into exactly the same scam (pre-MMM.)  The guy's got his hands in your pockets.  Run away!  Run away!

Call the good people at Vanguard about setting up your account there and rolling this money.  The bad news is that your current "advisor" will also hit you with fees to sell those funds.  They hit you coming and going, and the sooner you get away, the better off you'll be in the long run.

smalllife

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Re: American Funds - Adviser Fees
« Reply #4 on: April 01, 2014, 05:09:52 PM »
I'm stuck with American Funds due to my employer 401k (blah blah - they are sticking with that broker for business reasons and that's the only thing they can offer).   Depending on the asset class you are in, the fees will either be broken out or be a percentage (that's not marked) of the expense ratio.  If you are there as an independent investor you probably are on the crappy end of that stick - 1.5% minimum on their "index" funds.  Run away fast.