Do Fund Costs Matter?

Registered Investment Advisors offer distinct advantages to clients when it comes to saving their clients money.  Typically, mutual funds sold by financial services companies incur sales loads to the client as well as inflated expense ratios (mutual fund company management fees).  When combined, these costs reduce the return on investment. 

Registered Investment Advisors have access to no-load versions of the exact same funds and in many cases the expense ratio is also reduced.  As a result, all of the client's money is fully invested from the start. 

For example, the A shares of the popular American Funds EuroPacific Growth Fund, sold by brokers have a maximum sales load fee of 5.75% and a .84% annual expense ratio.  So a $1000 "invested" only results in $942 actually being invested.  Every year you lose almost 1% from your overall performance.  The equivalent shares offered through a Registered Investment Advisor has no sales load and an annual expense ratio of just .58%.  One thousand dollars invested is truly $1000 invested.

An investment in the A share class, with the maximum front-end fee, would have a three-year annualized return of 2.79%, ranking in the bottom half of all foreign large-cap funds.

The same investment in the no-load equivalent shares would have a return of just over 5%, ranking in the top quartile of the fund category, according to Morningstar Inc.

Extracted from Investment News

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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