So I was in my local bank branch earlier today to put an item in my safe deposit box. While I was waiting for the box lady, the branch's 'financial advisor' wandered over to me (he must've just finished counting his 2%). He asked if we could talk and I said "sure". Thought I'd have some fun.
He proceeds to tell me about this great health care sector fund he has for me and gives me a one page summary sheet. He shows me that the annual expenses are only 1.16%. I point out to him that I consider such fees to be high. His reply was, "Oh no, no, no - you misunderstand. These are the expenses, not the fees."
"OK, so what are the fees?"
"There are no fees."
"I'm confused. If there are no fees, how does the fund pay its bills."
"From the annual expenses. But don't worry, you never see that."
"But I'm seeing it right now on the page that you gave me!"
"No - those are the expenses, not the fees. The expenses pay for the managers employees salaries, subscriptions and trading costs. And that amount is automatically deducted from the daily return. Just like if we offered a CD at 0.75%, before expenses it's really 0.95% but you never see the 0.20% expenses."
"But that's why I would simply buy the highest net return CD rate available. Those fees matter too! As for the mutual fund, why wouldn't I just buy a similar fund with a much lower fee, such as a Vanguard fund."
"You could, but this fund doesn't have ANY fees - these are expenses."
After feeling like I was in the Spinal Tap movie discussing the amp going to 11, I moved on.
"Tell me how you get paid?"
"There is a one time 5% charge when you buy the fund. But the longer you stay in the less it averages out to."
"But you keep the 5% regardless of how the fund does, so it really never averages out, does it?"
About that time the box lady came over and the advisor gave me his card and some fund material and I left.
They must make a fortune off of the unwashed masses walking into the bank. After that bizarro discussion, I am firmly convinced that the law should provide that a person must be accompanied by an attorney before speaking with a 'financial advisor'. We need a Miranda rule for investing.
He proceeds to tell me about this great health care sector fund he has for me and gives me a one page summary sheet. He shows me that the annual expenses are only 1.16%. I point out to him that I consider such fees to be high. His reply was, "Oh no, no, no - you misunderstand. These are the expenses, not the fees."
"OK, so what are the fees?"
"There are no fees."
"I'm confused. If there are no fees, how does the fund pay its bills."
"From the annual expenses. But don't worry, you never see that."
"But I'm seeing it right now on the page that you gave me!"
"No - those are the expenses, not the fees. The expenses pay for the managers employees salaries, subscriptions and trading costs. And that amount is automatically deducted from the daily return. Just like if we offered a CD at 0.75%, before expenses it's really 0.95% but you never see the 0.20% expenses."
"But that's why I would simply buy the highest net return CD rate available. Those fees matter too! As for the mutual fund, why wouldn't I just buy a similar fund with a much lower fee, such as a Vanguard fund."
"You could, but this fund doesn't have ANY fees - these are expenses."
After feeling like I was in the Spinal Tap movie discussing the amp going to 11, I moved on.
"Tell me how you get paid?"
"There is a one time 5% charge when you buy the fund. But the longer you stay in the less it averages out to."
"But you keep the 5% regardless of how the fund does, so it really never averages out, does it?"
About that time the box lady came over and the advisor gave me his card and some fund material and I left.
They must make a fortune off of the unwashed masses walking into the bank. After that bizarro discussion, I am firmly convinced that the law should provide that a person must be accompanied by an attorney before speaking with a 'financial advisor'. We need a Miranda rule for investing.