Watch Out For The Sneakiest Fee

12b-1 fees crop up even on no-load mutual fund

Numerous mutual funds continue to charge 12b-1 fees even after they’ve closed their doors to new investors or reached a size where they don’t want to grow anymore. This has led to complaints from consumer advocates and even some within the industry, including John Bogle, founder of the Vanguard Group, that 12b-1 fees are excessive and unnecessary. The only way to know whether you’re being hit with a 12b-1 fee is to check your fund prospectus. In addition to telling you the fund’s objective, holdings and performance, the prospectus discloses all fees investors must pay. Another option is to look over Morningstar sheets, available in many libraries.

In the meantime, you might consider whether you want to invest at all in a mutual fund that has a 12b-1 fee. Research shows that the 12b-1 fee is “a deadweight cost borne by shareholders and has no tangible benefit to investors,” says Robert McLeod, Ph.D., a finance professor at the University of Alabama’s Culver House College of Commerce & Business Administration in Tuscaloosa, Alabama. “In general, 12b-1 funds have higher expense ratios and lower net investment returns than non-12b-1 funds.”

If you’ve got a choice between funds, all other things being equal, you’re probably better off selecting the one with the lower expenses.
To obtain back issues containing other parts of this series, please call our circulation department at 212-886-9568.

Pages: 1 2
ACROSS THE WEB