Reply #14: A short course on how people get paid . . .

[scruffy]

Some advisors charge a flat fee. Often these flat fees are many thousands of dollars - which means that the services of those advisors are only available to the relatively few who can afford to pay.

Some advisors charge by the hour. That can make their services affordable to many more, but some may object to being charged for the hours of research that some situations may require.

Some advisors offer mutual funds and/or other financial products for sale. If they sell a fund with a front-end load, the client pays an up-front commission when they make their purchase. If they object to a front-end load, mutual funds have a variety of other share classes - instead of an up-front charge, there may be no up-front charge but a higher expense ratio. Or instead of an up-front charge, you could purchase class B shares which have no up-front charge but a higher expense ratio for a certain period of time, along with a redemption fee for the first few years.

Some advisors charge based on a % of assets that they manage for their clients. Some advisors who do this use no load funds and some use funds that would ordinarily have a front-end sales charge but because they are being sold by advisors who charge based on a % of assets under management, the sales charge isn't assessed.

There are also no-load funds, in which there is no sales commission to the person who recommended them. If a person decides he wants to purchase no-load funds and isn't using an advisor in any capacity, they are basically on their own. Legally, no-load funds can't give much assistance on whether the fund is appropriate - they can just send out a prospectus and tell you to read it.

However, ALL mutual funds still have fees and expenses, regardless of whether they are compensating an advisor. Ordinary fees - lights, manager, advertising, etc.

Many funds that have up-front sales charges are excellent funds. As stated previously, the American Funds group is now the largest fund group out there, based on volume of $$ invested with them. Many of their funds are consistently ranked as top-performers. They have always had an up-front sales charge and quite vigorously defend it - they feel their funds are best sold through advisors and that the advisors should be compensated for it. They do offer other share classes, but they are definitely NOT a no-load family.

Conversely, there are some no-load funds that outperform funds with a sales charge. And for some people, no-load funds are fine .. . on the assumption that the individual feels comfortable making investment choices on their own. Some people are perfectly comfortable with this; many aren't. But to say across the board that no-load funds out perform load funds or vice versa is just not accurate.

To answer the last question of your post . . . EVERYONE ends up paying the fees assessed by the fund company for the expenses of running the fund. Some funds have low expenses (Vanguard is known for having very low expenses); others are not so low. If the fund also pays a commission, the purchaser is charged that amount too.

Something to think abut . .. not everyone is comfortable with investing on their own and the idea of researching, purchasing, and monitoring a no-load fund is very intimidating for them. If they have a relatively small amount of money to work with, they most likely won't be able to afford a fee-only advisor or even one who charges by the hour. To work with someone who charges based on assets under management, you usually need a decent amount of assets. So for a small purchase, a fund with an up-front sales charge may be the only way that person can be able to meet with someone who can give him good investment and other planning advice at a reasonable cost. Sales commissions are not automatically evil.