Is 6% a fair sales charge for a financial advisor to charge on new money invested? If not what is the norm?
Question:
Answer:
A sales charge is different from an annual fee. It's essentially a commission for selling a product, often a mutual fund.
If we are speaking of a mutual fund, 6% is somewhat on the high side, but not overly excessive for going to an adviser who is compensated on a commission basis (although I prefer not to deal with those types of advisers).
For example, a mutual fund might have a front end load of 5.75% (typical of many funds). That equates to a commission of about 6% (5.75/94.25). In other words, if you purchase a 5.75% load fund by writing a check for $100,000, your investment will be immediately worth $94,250. [note: this is the way a commission rate should be calculated, what you pay on your actual investment, not the gross investment).
Only you can decide if the advice you are receiving is worth the sales commission you are paying. If you feel that is not the case, look to a host of no-load or low-load funds or ETFs that are available.
In her book on investing, selected by Oprah as a book to read, Gail Marksjarvis shows just how sales charges affect returns along with other factors such as the annual expense ratio. I highly recommend the book . . . as does Oprah: Saving for Retirement without Living Like a Pauper or Winning the Lottery, by Gail Marksjarvis.
No way. Entirely to high.
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I would NEVER pay a "financial advisor" who charged a percentage sales fee. I guarantee you, this guy is not going to do 6% better with your money than you could do on your own.
Find a fee only financial advisor- they're the real deal. Or better yet, read The Little Book of Common Sense Investing by John Bogle and ask yourself if you really need a financial advisor.
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