Minimize Extraneous Fees

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Most investors have no idea what their real cost of ownership is for many investments. The popular mutual fund-of-funds comes to mind to illustrate the potential fees incurred by investors. Initially, the investor may pay an ‘advisory fee’ or a ‘load’ to buy or sell the fund in order to compensate the investment advisor or broker who recommended the purchase of the fund. A fee is paid to the manager of the fund-of-funds who selects which funds to invest in. Another fee is paid to managers of the actual funds inside the fund-of-funds. Each fund at both the fund-of-funds level and the underlying fund level have operational and marketing expenses it may charge. The fund may pay a marketing fee often referred to as a ‘trailer’ to the advisor or broker who sold the fund. The underlying funds have transaction fees in the form of commissions paid to buy or sell the underlying investments in the funds, which may include the purchase of even another fund product with its own layer of fees. The more turnover, i.e. the purchase and sale of securities, in the underlying funds increases the amount of fees paid by the investor. If this sounds complicated then it probably is. All of these fees are a ‘drag’ on the potential return to be enjoyed the investor. A fund-of-funds may be an appropriate solution for a client. We are open-minded. However, simple is better in our view and keep the fees down.