September 14, 2010
I am a financial advisor in a small community bank (South Central Bank) and live in the same neighborhood as my congressman Brett Guthrie. Please hear my concerns about the proposed changes in the Dodd-Frank bill in regards to the mutual fund distribution fees.
As a CFP I am always diligent about finding the best value for my clients. I believe a fee base approach makes sense in most cases for my clients. And after weighing the benefits of the various types of managed money programs, wrap programs, and private money managers over the last decade+ I come back to C shares as the most cost efficient manner to deliver that value for most my clients.
I believe there is value in the flexibility that a one year surrender period presents over paying an upfront load. Maybe and hopefully the client ends up owning the fund for longer than that but sometimes things change and they dont. Interest rates change, life changes, or the fund changes and it warrants them getting out sooner than expected. That is why A shares dont always make sense and especially in my community where we have more of the $10,000 - $150,000 accounts rather than the 1M+ accounts. Even with breakpoints that's only if you stay within one fund family. Different fund families have different areas of expertise and often it's prudent to spread a client out over 3 or 4 fund families. MFS has a great emerging market fund. Franklin has a great income fund. American Funds have several good growth/income and international funds. Calamos has a great convertible bond fund.
I was in the business in the 1990's when AIM and Putnam were 2 of THE fund families to be in. Over the course of a year or two the performance lagged the benchmark considerable, assets were flying out the funds which compounded the problems with performance, the funds were involved in late trading practices, and most of the good managers fled. My clients who paid a load to get the A shares felt stuck with these firms because they already paid their load to get in and either they sell after they have dropped 40% or they stomach being with a fund family they dont want to be with. That's a bad spot. With a share C you have the flexibility to move.
In looking at the current fee base alternatives with my broker dealer (LPL) Im looking at going from an annual expense ratio of 1.25%-1.50% with a C share portfolio to something closer to 2.5% within their various programs. There are great fund families with great funds who keep cost down and whose shares do convert to A shares over a period of time.
Please give consumers the choice. I know there are bad apples in our business but those people will not be slowed down by this proposed change they will just adapt around it and in the end it will cost consumers more money.
Please consider my voice.
Dan Klein