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helping my brother get out of load funds
Old 01-12-2009, 05:32 PM   #1
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helping my brother get out of load funds

Hi all,

I know, I know, it's messy to get involved with finances and family However, I am willing to take the risk since I love my bro so much, AND I also know he's not going to hold my feet to the fire if my advice goes sour (he's reading this, so hey bro - that's my disclaimer!)

My brother asked me to take a look at some of his funds, and I quickly discovered that all of his funds either have a front load or deferred load. They all also have expense ratios well above 1%.

From everything I have read here, it sounds like his broker is killing him with these fees. I spoke to him about it, and he was p*ssed with his broker to begin with for ignoring him, and said that this seals the deal. So he's looking at getting his money out of there, and per my recommendation, going with a low cost brokerage like Vanguard or something similar.

The funds are all within IRA's and simpleIRA's, and I believe one is in one of those college funds for his son. Well, I'm in over my head on this one, as I have no experience with load funds and getting out of them. Can someone give us some direction as to what he needs to look at first - fees/penalties, etc., etc.? Should he able to just transfer the funds to an IRA at say Vanguard (choosing similar funds with no loads and low fees of course!)? What else should we be looking at?
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Old 01-12-2009, 06:02 PM   #2
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If the funds have the letter A at the end of their names, then the load was paid up-front. In other words, the damage has already been done. So it should cost nothing to sell them.

If the funds have the letter B at the end of their names, then you pay the commission when you sell the fund. So you will have to eat that cost if you decide to go elsewhere.

If the funds have the letter C at the end of their names, then you also have to pay a commission when you sell the fund though the load is usually smaller than for B funds. But C funds have usually very high expense ratios and should be avoided when possible (since they don't make much money on commissions, they get you by jacking up the fund expenses).

So selling A funds: no costs. Selling B or C funds will cost you. How much? Go to morningstar.com, type the ticker of the mutual fund in the "quote" box at the top of the page and in the fund snapshot, look under "deferred load %". It's the percentage of your money that they will keep when you sell the fund.

Of course you still have to worry about trading fees, account closure fees, etc... But you will have to ask your broker about those, because they vary from place to place.
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Old 01-13-2009, 08:17 AM   #3
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B funds usually have a fee when selling but the fee decreases with time, eventually getting to zero. Usually have higher management fees than an A fund. Need to take the deferred fee on B's in consideration.

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Old 01-13-2009, 08:18 AM   #4
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Quote:
Originally Posted by simple girl View Post
Hi all,

I know, I know, it's messy to get involved with finances and family However, I am willing to take the risk since I love my bro so much, AND I also know he's not going to hold my feet to the fire if my advice goes sour (he's reading this, so hey bro - that's my disclaimer!)

My brother asked me to take a look at some of his funds, and I quickly discovered that all of his funds either have a front load or deferred load. They all also have expense ratios well above 1%.

From everything I have read here, it sounds like his broker is killing him with these fees. I spoke to him about it, and he was p*ssed with his broker to begin with for ignoring him, and said that this seals the deal. So he's looking at getting his money out of there, and per my recommendation, going with a low cost brokerage like Vanguard or something similar.

The funds are all within IRA's and simpleIRA's, and I believe one is in one of those college funds for his son. Well, I'm in over my head on this one, as I have no experience with load funds and getting out of them. Can someone give us some direction as to what he needs to look at first - fees/penalties, etc., etc.? Should he able to just transfer the funds to an IRA at say Vanguard (choosing similar funds with no loads and low fees of course!)? What else should we be looking at?
If you want to keep your life "simple",have Vanguard or whomever do the transfer for you. All your brother needs to do is sign a form authorizing Vanguard to request liquidation and do the transfer.

If he's going to get bent over some account closing fees and deferred loads, you've got a problem. You didn;t say whether he had B share, A shares, or C shares. A recent statement will tell you that.

If you want any more info PM me, I can help.......
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Old 01-13-2009, 06:32 PM   #5
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Thanks everyone for the information. My brother is digesting this information and will be taking a closer look at the funds, see what kind of shares he has, what the fees are to get out, etc. I also gave him Vanguard's # so he can call them for advice on the transfer of the funds. Hopefully all will go smoothly!
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Old 01-25-2009, 03:08 PM   #6
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Originally Posted by RE2Boys View Post
B funds usually have a fee when selling but the fee decreases with time, eventually getting to zero. Usually have higher management fees than an A fund. Need to take the deferred fee on B's in consideration.

RE2Boys
Follow up question: Is this fee when selling in addition to the deferred load? Or are you saying the deferred load actually decreases with time?
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simple girl
less stuff, more time

(50, married; Mr. Simple Girl, 54. I am semi-retired as of 2015 (still have a part-time gig), Mr. Simple Girl hopes to fully retire 2019 (yep, we have the OMY syndrome...healthcare inflation is the culprit...and he wants a boat...not happening)
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Old 01-25-2009, 03:16 PM   #7
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You didn;t say whether he had B share, A shares, or C shares. A recent statement will tell you that.

Statement shows he has 11 A funds, 16 B funds, and 1 C fund. He is currently contemplating what to sell. Is looking at selling some of the B funds that are underperforming and have high costs. Says they are 2-4 yrs old and that the penalty would be low.

Sounds like a reasonable approach to me. Some of these B funds have expense ratio's around 2%.
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simple girl
less stuff, more time

(50, married; Mr. Simple Girl, 54. I am semi-retired as of 2015 (still have a part-time gig), Mr. Simple Girl hopes to fully retire 2019 (yep, we have the OMY syndrome...healthcare inflation is the culprit...and he wants a boat...not happening)
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Old 01-25-2009, 06:09 PM   #8
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Originally Posted by simple girl View Post
Statement shows he has 11 A funds, 16 B funds, and 1 C fund. He is currently contemplating what to sell. Is looking at selling some of the B funds that are underperforming and have high costs. Says they are 2-4 yrs old and that the penalty would be low.

Sounds like a reasonable approach to me. Some of these B funds have expense ratio's around 2%.
The A shares can be sold with no penalty. The C share has a deferred charge for one year, so if he's owned it for more than 12 months he's in the clear.

B shares are tricky. Most B shares have a 5-6 year surrender, the first 2-3 years are pretty high surrenders. It's up to him, but another option would be to exchange the fund for another in the same family that's done better. There is not charge to do that.........
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