There are two basic ways a person can pay the fee for their investments. They can pay up front in the form of commissions, or sales charges. Or they can open a fee based account, and pay an ongoing advisor fee. With either account they will still be required to pay internal expenses.
Paying the sales charges up front is often referred to as paying commissions. Often as high as 5.75% of the amount coming in, many investors balk when they see them. The rates are high, but the important thing for the investor to remember is that mutual funds that have a sales charge often perform better than those which do not. For those who do not like the idea of paying a commission, there are other options.
Some accounts will waive the sales charges, but then charge for ongoing advisory services. Often as much as 1% per year (on top of those internal expenses), these account strive to significantly beat their commission counterparts. By actively managing the funds within the account, the advisor is aiming to offset the fee he or she charges. Unfortunately, it is often hit or miss if the advisor can make up for the fee they charge.
There are ways to get around both fees. The investor could use what are called C shares. This class of share does not have a front-end sales charge, but rather charges higher internal expenses. Usually these shares are for accounts that will be in existence 5 years or less. After that point the investor is not saving any money. The other way to avoid the sales charge is to invest in no load funds. These are mutual funds that have no active management so they are able to provide them to the investor at a much cheaper rate. Many people find that these funds do not perform nearly as well as those with a load.
For those who are unable to meet the mutual fund break points there are ways to pay reduced fees. But what it basically boils down to is choosing a method where you are most comfortable. If paying the advisor fee to get more close attention to the account is what you desire, then it is worthwhile to pay the advisor fee. In the end everyone needs to save up for retirement. By talking with a trusted advisor and working out a plan that suits your needs and style, you can make sure you will have adequate retirement investments.
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