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Are Hidden Fees Hurting Your Investment Returns?

By Yvonne Marsh, CFP®, CPA

A recent TV commercial caught my eye where a young son asks his dad how his investment advisor gets paid, and the dad admits he doesn’t know.  The truth is, it’s hard to know!

So what is an investor to do?  Research your current investments, and know what questions to ask.  Here are a few tips:

  • For mutual funds, know what share class you own. Look at your statement and see what it says: CL A, CL B, CL C, or CL I after the mutual fund name.  This Class letter is how your broker gets paid – whether it’s a front-end purchase load (A share), a back-end sales load (B), or a C Share with no load but a higher, ongoing fee. Loads can range from 3% to 5.75%, so it’s important to know which ones you have.  Class I shares, used by flat-fee based advisors, don’t have loads.
  • Know what 12b-1 marketing fee you’re paying. Look up your mutual fund on an independent site, such as Morningstar.  Depending on your Class A, B, or C, it can range from .25% to 1.25%.  Class I shares don’t charge 12b-1 fees.
  • While you’re looking at your 12b-1 expense on Morningstar, also take note of the “expense ratio.”  That’s an operating expense charge and netted against the investment return.  Investing in low cost funds should be an important part of your strategy.
  • Look at the Schedule D on your tax return. How much capital gains and losses is your advisor creating?  If your broker is actively trading your account, it can really hit home at tax time.  Tax-managed mutual funds are an important part of an effective investment strategy.  The adage “It’s not what you earn, it’s what you keep” is very true.
  • Lastly, know whether your advisor works through a broker or registered investment advisor (RIA).  Brokers are held to a suitability standard of duty and are paid through commissions, loads, and 12b-1 fees. RIA’s are held to a fiduciary standard of duty. They are paid an investment advisorya flat fee based on your portfolio assets and don’t receive loads, commissions, or 12b-1 fees.

Want to know what fees you are really paying? Call today to set up your complimentary meeting.  We will give you a clear understanding of your current investments’ costs using third-party, objective software. consultation, or bring a friend and join us at our next Lunch ‘n Learn at Lakeside Tavern to learn more.

Marsh Wealth Management, LLC
1341 Branton Blvd, Suite 105
Knoxville, TN 37922
865.622.2162
admin@marshpros.com
www.marshwealth.com

Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee.  Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee.  Marsh Professional Group, LLC is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov.

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