Help me with my 401K?

[jively]

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Dear jively,
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I’m going to ask you a favor, and I will understand if you don’t answer, or if you don’t know the answer….

The question is in regard to the loads and 12b-1 fees that load mutual fund companies charge investors. For instance, America Funds generally charge a 5.75% (6.1% net) upfront load for Class A funds up to a $25,000 purchase. Eighty-six percent (86%) of this load fee is funneled back to the brokerage house that sold the fund to the individual. I was curious; in general, what percent of this money funneled back to the brokerage house is shared with the broker salesman (the account rep). If you know the answer, I would appreciate also knowing it.

Also America Funds did charge a yearly Class A fund 0.12% 12b-1 fee; now increased to a 0.23 or 0.24%. This fee is funneled back to the brokerage house. Again – I am curious what part of this fee is shared with the broker salesman (the so-call account executive). I would guess many 60% is given (earned by?) to the salesman. Do you know or have an opinion? I would appreciate it if you (or anybody else) gave me an estimate (just a ballpark estimate). I realize that most brokers don’t want to share stuff like this with the public.

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I'm sorry but I do not know the answer. I am a CFP (Certified Financial Planner) professional, and I work for a company that is a Registered Investment Advisor. I do not have any NASD licenses (Series 6, 7, etc.) so I can not earn commissions on any investment product. I am not a broker.

There is a lot of debate between investment advisors on fee-based vs. commission. There are plenty of stockbrokers that "churn" their client accounts, turning over their portfolios every year, alternating between A-shares, B-shares, ETFs, variable annuities: investment products that can have high loads or commissions.

My favorite advice is from Nick Murray, who is an advisor coach who writes for Financial Advisor Magazine. He says basically that the relationship between an advisor and a client has to be a long-term one, and that the advisor has to be fairly compensated. A-shares and B-shares do not correctly compensate an advisor to have a low-turnover, long-term relationship with a client.

C-shares, that charge 1% annually paid to the advior, do fairly compensate the advisor. 1% is roughly what a fee-based firm like mine charges based on assets managed. Both have no incentive to turn over the portfolio, so that a portfolio that is properly balanced and diversified may never need to be changed (besides rebalancing or changes of goals), and a tax efficient long-term relationship can flourish with excellent long-term investment returns.

-Tom