Author Topic: Would it make any difference if Front Load Fees were covered?  (Read 1082 times)

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 1429
  • Location: Bellingham, WA
My Grandparents recently decided to gift me $5,000 .  In order to receive this gift, they wanted me to set up an account with their Financial Advisor at Merrill Lynch.  I believe that they plan on using this account for inheritance purposes in the future... not sure.  Anyway, I jumped thru the hoops and set up an account with the Advisor last week.  I told him that I am a simple investor and would like the majority of my funds to go into an S&P500 or Total Stock Market Index Funds.  He kept being pushy about Mutual Funds that he recommends, and even went as far as to say that my Grandparents said they would cover any front load funds if I were to choose them... Nice deal for him, am I right?

So my question is, is there any amazing mutual fund that I am not aware of that most Mustachians would steer away from due to fees but would if fees were covered would be tempting?  I'm leaning toward sticking with my Investment Policy Statement and Going with about 80% VTSAX and 20% Bonds, but just wanted to hear what others think.  I always admired American Funds Growth Fund of America (AGTHX) in my old 401K that has a 5.75% front load fee with Merrill.

One concern I have is that, yes, the fees may be covered now, but in the future if this is indeed their inheritance vehicle that a much larger chunk of money may be hit with a high front load fee down the line.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3605
  • Age: 37
Re: Would it make any difference if Front Load Fees were covered?
« Reply #1 on: May 27, 2019, 05:58:20 PM »
No front load helps, however a lot of front-load funds also have high ongoing expenses.

AGTHX, for example - has an annual expense ratio of .62%. Over time, that will hurt.

I'll take VTSAX over that one any day.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5145
Re: Would it make any difference if Front Load Fees were covered?
« Reply #2 on: May 27, 2019, 07:38:25 PM »
Do you have investment accounts elsewhere?

Your grandparents think they are doing you a favor by hooking you up with "their" guy, who of course is their friend and doing everything in their best interest.  Or so they think.  In your shoes, I would tell them that the numbers show that low cost investing in index funds beats most managed accounts and the five percent load and ongoing fund management costs are costing them a huge portion of their total return.  Tell them you have opened investment accounts with another company based on that, and while you would welcome their gift, you are not willing to invest with this adviser because of the cost.  There are a number of articles complete with graphs at various sites that demonstrate the cost of investing in load funds with high ongoing costs and working with advisers that charge a percentage of assets under management.  Scout out a few of those and forward them to your grandparents.  Then close the account with ML or convert it to an"Edge" account if they insist on sticking with ML.

RWD

  • Magnum Stache
  • ******
  • Posts: 3795
  • Location: Mississippi
Re: Would it make any difference if Front Load Fees were covered?
« Reply #3 on: May 27, 2019, 09:04:14 PM »
I would have declined the gift.

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 1429
  • Location: Bellingham, WA
Re: Would it make any difference if Front Load Fees were covered?
« Reply #4 on: May 27, 2019, 09:18:13 PM »
Do you have investment accounts elsewhere?

Your grandparents think they are doing you a favor by hooking you up with "their" guy, who of course is their friend and doing everything in their best interest.  Or so they think.  In your shoes, I would tell them that the numbers show that low cost investing in index funds beats most managed accounts and the five percent load and ongoing fund management costs are costing them a huge portion of their total return.  Tell them you have opened investment accounts with another company based on that, and while you would welcome their gift, you are not willing to invest with this adviser because of the cost.  There are a number of articles complete with graphs at various sites that demonstrate the cost of investing in load funds with high ongoing costs and working with advisers that charge a percentage of assets under management.  Scout out a few of those and forward them to your grandparents.  Then close the account with ML or convert it to an"Edge" account if they insist on sticking with ML.

Yeah, We have six figures invested between 401K's, Roth IRA's, HSA's, etc.  I agree, not a huge fan of ML, but it's not a huge deal...  I can transfer it to Vanguard hopefully someday.  In the meantime I can choose to put my funds into VTSAX, the Financial Advisor was recommending other things but said it was 100% our choice.  I can choose no-load funds absolutely... I was just wondering if I should change my strategy because load fees would be paid.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5145
Re: Would it make any difference if Front Load Fees were covered?
« Reply #5 on: May 27, 2019, 09:50:17 PM »
Make sure this is not an account where you are paying this guy a percentage of the account every year for him to "manage" it.  Merrill has a self-directed, low cost account called Merrill Edge.  That might be an acceptable compromise with the grandparents.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1890
Re: Would it make any difference if Front Load Fees were covered?
« Reply #6 on: May 28, 2019, 08:48:53 AM »
When you compare investors who panic versus investors who don't, those who stay the course do better.  I hate load funds, but they force some people to stay the course and perform better.  But that doesn't sound like your situation.

Keep in mind you're thinking about an inheritance - any payments made now come out of that inheritance later.  That means paying the load now isn't really as free as it seems.

Even so, the S&P 500 will most likely beat whatever this adviser suggests.  It beats over 80% of funds in the short-term (3-5 yrs), and does even better long term.  So I'd still favor S&P 500 / total market funds over other funds, even ignoring front load fees.

Psychstache

  • Pencil Stache
  • ****
  • Posts: 881
Re: Would it make any difference if Front Load Fees were covered?
« Reply #7 on: May 28, 2019, 09:13:40 AM »
I would have declined the gift.

+1

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 1429
  • Location: Bellingham, WA
Re: Would it make any difference if Front Load Fees were covered?
« Reply #8 on: May 28, 2019, 10:19:43 AM »
I would have declined the gift.

+1

Not really a choice without coming off as an ungrateful arrogant grandson.  But I think (?) I know where you're coming from?

uwp

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: Would it make any difference if Front Load Fees were covered?
« Reply #9 on: May 28, 2019, 11:38:49 AM »
I would have declined the gift.

Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1555
Re: Would it make any difference if Front Load Fees were covered?
« Reply #10 on: May 28, 2019, 11:42:27 AM »
I would have declined the gift.

Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

Yeah, the 5k is free. It doesn't matter what the fee's are really. Even if they are 3% yearly, free money is free money. He can always just transfer it in a few years.

RWD

  • Magnum Stache
  • ******
  • Posts: 3795
  • Location: Mississippi
Re: Would it make any difference if Front Load Fees were covered?
« Reply #11 on: May 28, 2019, 01:51:15 PM »
I would have declined the gift.

+1

Not really a choice without coming off as an ungrateful arrogant grandson.  But I think (?) I know where you're coming from?
Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

Yeah, the 5k is free. It doesn't matter what the fee's are really. Even if they are 3% yearly, free money is free money. He can always just transfer it in a few years.

It's not a "free" gift. It is coming with strings attached. Expectations to invest a certain way with a company that I am philosophically opposed to. Obligation to set up and maintain a new account. Forced interaction with a financial advisor. $5k is not enough money for me to jump through these hoops for it. I would feel like they are trying to buy my behavior/actions, to a certain extent.

My grandparents are all dirt poor so there is little chance of this exact scenario occurring for me. But my in-laws did gift us $5k earlier this year (for which I am very grateful) and as far as I can tell it was truly no strings attached. Direct transfer to our checking account and no implications that we should be using it for anything specific.

Psychstache

  • Pencil Stache
  • ****
  • Posts: 881
Re: Would it make any difference if Front Load Fees were covered?
« Reply #12 on: May 28, 2019, 02:06:04 PM »
I would have declined the gift.

+1

Not really a choice without coming off as an ungrateful arrogant grandson.  But I think (?) I know where you're coming from?
Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

Yeah, the 5k is free. It doesn't matter what the fee's are really. Even if they are 3% yearly, free money is free money. He can always just transfer it in a few years.

It's not a "free" gift. It is coming with strings attached. Expectations to invest a certain way with a company that I am philosophically opposed to. Obligation to set up and maintain a new account. Forced interaction with a financial advisor. $5k is not enough money for me to jump through these hoops for it. I would feel like they are trying to buy my behavior/actions, to a certain extent.

My grandparents are all dirt poor so there is little chance of this exact scenario occurring for me. But my in-laws did gift us $5k earlier this year (for which I am very grateful) and as far as I can tell it was truly no strings attached. Direct transfer to our checking account and no implications that we should be using it for anything specific.

Exactly, it is the string and implicit violation of boundaries. There's no such thing as a free lunch.

I get what you are saying about appearing ungrateful, but there are ways to have boundary setting conversations that express love and gratitude for the gesture while also explaining that their generous gift doesn't fit into how you want to manage your household finances. It doesn't involve an ultimatum or getting into a debate about whose investment style is right.

My in-laws have gifted us money over the years and there has been never a comment or question about what we do with it. I am grateful for the respect in addition to the gift.

Also, smaller point but the load fees being covered doesn't do it for me either. I don't like seeing friends or family waste money anymore than I like wasting my own money and in this scenario I have the ability to not have them waste the money on the loads by not investing with the advisor.

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 1429
  • Location: Bellingham, WA
Re: Would it make any difference if Front Load Fees were covered?
« Reply #13 on: May 28, 2019, 02:30:57 PM »
I would have declined the gift.

+1

Not really a choice without coming off as an ungrateful arrogant grandson.  But I think (?) I know where you're coming from?
Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

Yeah, the 5k is free. It doesn't matter what the fee's are really. Even if they are 3% yearly, free money is free money. He can always just transfer it in a few years.

It's not a "free" gift. It is coming with strings attached. Expectations to invest a certain way with a company that I am philosophically opposed to. Obligation to set up and maintain a new account. Forced interaction with a financial advisor. $5k is not enough money for me to jump through these hoops for it. I would feel like they are trying to buy my behavior/actions, to a certain extent.

My grandparents are all dirt poor so there is little chance of this exact scenario occurring for me. But my in-laws did gift us $5k earlier this year (for which I am very grateful) and as far as I can tell it was truly no strings attached. Direct transfer to our checking account and no implications that we should be using it for anything specific.

Exactly, it is the string and implicit violation of boundaries. There's no such thing as a free lunch.

I get what you are saying about appearing ungrateful, but there are ways to have boundary setting conversations that express love and gratitude for the gesture while also explaining that their generous gift doesn't fit into how you want to manage your household finances. It doesn't involve an ultimatum or getting into a debate about whose investment style is right.

My in-laws have gifted us money over the years and there has been never a comment or question about what we do with it. I am grateful for the respect in addition to the gift.

Also, smaller point but the load fees being covered doesn't do it for me either. I don't like seeing friends or family waste money anymore than I like wasting my own money and in this scenario I have the ability to not have them waste the money on the loads by not investing with the advisor.

There's a whole bunch you both don't understand about this situation, which is fine because I didn't go into great detail in the original post.  At this point, my actual question has been pretty well answered and I don't like this sidetrack.

use2betrix

  • Handlebar Stache
  • *****
  • Posts: 1901
Re: Would it make any difference if Front Load Fees were covered?
« Reply #14 on: May 30, 2019, 11:48:21 AM »
I would have declined the gift.

+1

Not really a choice without coming off as an ungrateful arrogant grandson.  But I think (?) I know where you're coming from?
Why?

Is this like the people who don't take the match at their work 401k because they can't buy Vanguard Funds?

Yeah, the 5k is free. It doesn't matter what the fee's are really. Even if they are 3% yearly, free money is free money. He can always just transfer it in a few years.

It's not a "free" gift. It is coming with strings attached. Expectations to invest a certain way with a company that I am philosophically opposed to. Obligation to set up and maintain a new account. Forced interaction with a financial advisor. $5k is not enough money for me to jump through these hoops for it. I would feel like they are trying to buy my behavior/actions, to a certain extent.

My grandparents are all dirt poor so there is little chance of this exact scenario occurring for me. But my in-laws did gift us $5k earlier this year (for which I am very grateful) and as far as I can tell it was truly no strings attached. Direct transfer to our checking account and no implications that we should be using it for anything specific.

Or maybe his grandparents (like most people, especially of that generation) truly don’t know the difference or know any better? They don’t know if V8 guy is -$100k in debt or has $5mil in the bank. They likely think all investing is the same, or “pretty similar” and just hired a financial adviser one day and said “here, invest my money.”

I would, likely, reach out to the family that gifted it to me and ask them if they are OK with me investing at Vanguard, which is where the rest of my portfolio is.. If they had an issue with it, I’d still buy the funds I wanted and let it sit for however long I want.. Till FIRE, or till they pass away and I’d no longer feel bad about moving it..

Car Jack

  • Handlebar Stache
  • *****
  • Posts: 1406
Re: Would it make any difference if Front Load Fees were covered?
« Reply #15 on: May 31, 2019, 06:26:07 AM »
I think what I would do is set up the ML account as requested.  Then look at what the costs are for any available investments.  I'd rather put that $5k into a money market fund and leave it there than pay some shill a front end load.  In the future, when the grand parents pass, yank it out of Merrill immediately.