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Rekenthaler Report

A Horse of a Different Color

Moving the expense discussion to the cost of financial advice.

Clear as Mud
As I've written twice now, there's little blood to be drawn from continued discussions about mutual fund expenses. U.S. investors have learned the lesson, such that low-cost funds receive nearly all fund inflows. I don't quarrel with the massive amounts of ink (and cyberink) that have been spilled on the subject, because it's a very important subject. But that deal has been closed.

On the other hand, ain't nobody writing about the new fee structure levied by financial advisors. The previous, commission-based model had the advantage of being open and explicit. A mutual fund's front-end sales charge was printed right there in the prospectus, as were its 12b-1 fees (if any). Exchange-traded funds, too, had an explicit charge, in the form of a commission on the trade. However, now that the financial-advice business is galloping toward fee- and asset-based charges, the waters have become murky.