Need to get smart FAST; help w/sales charge

[LERDELY]

Scenario:
Wachovia broker bought us $10,300 in Hernderson (HFOAX). Confirmation says initial sales charge 4.74%. No actual commission amount is listed on confirmation. According to Morningstar, HFOAX has a front load of 5.75%.

Questions:
1. How much did my broker make on this? I'm hoping the 4.74 is the sales charge with breakpoint and not in addition to the front load.
2. He has put us in 4, possibly 5, funds with front loads of 5.5% to 5.75%, all in class A shares. They generally have high expenses also, 1.14 - 2.17. Purchases have been made more than once, plus our accounts are set to reinvest. Does he get that percentage with each automatic reinvestment?
3. All funds we're in have 12b1 expenses. Do those apply to Class A shares?

I could go on, but I'll end with one final question: He recently went on a cruise; did I single-handedly pay for it?

In my/our defense, I have not been involved in this account till now (my husband has been dealing with it). We have always had managed money at UBS (another scenario for another post -- must figure out Wachovia NOW).j

I'm not even going to try to use a smiley on this post; I don't think there is one with an exploding head. And I need definite answers, not speculations please.

 

[gindie]

Questions:
1. How much did my broker make on this? I'm hoping the 4.74 is the sales charge with breakpoint and not in addition to the front load.
2. He has put us in 4, possibly 5, funds with front loads of 5.5% to 5.75%, all in class A shares. They generally have high expenses also, 1.14 - 2.17. Purchases have been made more than once, plus our accounts are set to reinvest. Does he get that percentage with each automatic reinvestment?
3. All funds we're in have 12b1 expenses. Do those apply to Class A shares?

First of all, HFOAX appears to be a good International fund, but it only has a 5-year history.

All of your questions can be answered in the prospectus, did your broker give you one prior to the sale? If not, it can be found at: http://tinyurl.com/22jzlq

1) Sales charge = load, looks like you may have gotten a small reduction by the broker with the 4.74, because the stated breakpoint isn't until $50K.

2) My experience (20 years ago) is that reinvestments aren't subject to the sales charge

3) 12B-1 fees are included in the stated expense ratio. They are 0.25% of the 1.71% expense ratio for Class A shares.

Don't beat yourself up over this too much. Like I said, the fund has decent performance. The more you research investing, including reading this forum, the more comfortable you'll feel eventually separating yourself from the broker.

 

[Nords]

Scenario:
Wachovia broker bought us $10,300 in Hernderson (HFOAX). Confirmation says initial sales charge 4.74%. No actual commission amount is listed on confirmation. According to Morningstar, HFOAX has a front load of 5.75%.
Questions:
1. How much did my broker make on this? I'm hoping the 4.74 is the sales charge with breakpoint and not in addition to the front load.
2. He has put us in 4, possibly 5, funds with front loads of 5.5% to 5.75%, all in class A shares. They generally have high expenses also, 1.14 - 2.17. Purchases have been made more than once, plus our accounts are set to reinvest. Does he get that percentage with each automatic reinvestment?
3. All funds we're in have 12b1 expenses. Do those apply to Class A shares?
I could go on, but I'll end with one final question: He recently went on a cruise; did I single-handedly pay for it?
In my/our defense, I have not been involved in this account till now (my husband has been dealing with it). We have always had managed money at UBS (another scenario for another post -- must figure out Wachovia NOW).j
I'm not even going to try to use a smiley on this post; I don't think there is one with an exploding head. And I need definite answers, not speculations please.

Welcome to the board, Lerdely. I think.

Do you want fast answers or correct answers? If you want ideas and suggestions then you've come to the right place. If you want definite answers then you'll need to talk to your brokerage. Too many posters leave out details that don't seem relevant but later turn out to be important-- that's why responses have so much speculation.

1. Ask your brokerage for a written breakdown of where your $10,300 is invested. I'm hoping you're right about the 4.74% too.

2. Front loads are supposed to be just that, and reinvestments are supposed to be free. The way to figure out what's happening is to get a written breakdown of how much each cap distribution was and where each dividend/cap gain went to.

3. The definite answer is "I don't know." The speculative answer is "Probably, because brokerages can get away with justifying just about anything." The correct answer is "read the prospectus and the Statement of Additional Information".

4. Yes.

You're welcome!

 

[LERDELY]

Thanks to all for the information. My reason for asking for definite answers stems from other online question experiences elsewhere with lots of "maybe this" and "my third cousin once removed had this happen" type of responses. And thanks for the welcome to the board; I promise to be more circumspect going forward.

I am going to ask the broker for the sales charges in writing. I was just stunned when I saw this on the statements; I've had my own mutual funds for years and never had a share class, just the institutional shares with no loads.

We inherited stocks at Wachovia last year and we don't have stock expertise (nor mutual fund expertise, it now appears). I'll admit to being slightly intimidated by the broker since he's been at this so many years, sometimes goes into "broker-speak" I can't follow fast enough. But we've been looking for a financial planner so in the meantime I've started drilling into the Wachovia using Morningstar. I think by the time I'm through we won't be using a planner; I've about had enough of everybody taking their piece out of our pie.

 

[ats5g]

You might want to check out NASD's Mutual Fund Breakpoint Search Tool. You can use it for any mutual fund sold by a broker.

- Alec

 

[chinaco]

Dump the Broker! The only person that the broker provided a great service for was himself. That fund has and additional 1.75 yearly expense.

Chalk it up to experience and move on. Be glad it was only a $10k investment. Imagine if it was $100k.


Personally I go with no-loads. And mainly with no-loads that have low maint fees like Vanguard (like many on this board).


I found out a while back. I am not likely to even pick a good Mutual Fund Manager over the long-haul. I tend to stick with Index funds. However I am not opposed to active funds if the no-load fees are not too steep.

 

[dex]

Dump the Broker! The only person that the broker provided a great service for was himself. That fund has and additional 1.75 yearly expense.

Chalk it up to experience and move on. Be glad it was only a $10k investment. Imagine if it was $100k.

Personally I go with no-loads. And mainly with no-loads that have low maint fees like Vanguard (like many on this board).

I found out a while back. I am not likely to even pick a good Mutual Fund Manager over the long-haul. I tend to stick with Index funds. However I am not opposed to active funds if the no-load fees are not too steep.

Is there a time period where you can get out of this investment similar to the 2 to 3 day cancellation on some consumer contracts - e.g. health clubs.

I doubt it but worth checking into.

Otherwise I'm with Chinaco on this one - Go to Vanguard

 

[mb]

Lerdely,

I think that the important take away is to realize that you can get similiar or most likely better performance from no-load, low expense ratio funds and you don't need a broker or an investment advisor to buy them and of course you Wachovia broker is probably not going to tell you about them because he will not make any money off of them.

MB