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Is Paying a Percentage of your Investments like Paying a Commission? #Commissions #InvestmentManagementFees

By February 5, 2013 October 4th, 2016 No Comments

People often ask isn’t paying a percentage of your investment assets the same as paying a commission? Some people think that it is. Because you pay a percentage of the amount you are investing, it can sound like a commission. I disagree, and the largest organization of fee-only Financial Planners, the National Association of Personal Financial Advisors (NAPFA) disagrees, because the advice and the products recommended or purchased have no bearing on the fee; and the client still pays the fee.

The difference is that the fee is not paid to the advisor by the maker of the product, as in the case of commission-based sales. When you buy a load mutual fund from an advisor, the mutual fund company pays the commission to the advisor. No matter what the independent fee-only advisor recommends, he will charge you the same fee based upon a percentage of the assets he manages for you, and you will have to pay it.

As an aside, I don’t know how many times I have heard that when you buy a mutual fund from a broker, you don’t really pay a commission; the fund company pays the broker for the sale. That, of course, is ludicrous, and drives me bonkers. If the mutual fund commission is not paid from the customer’s money, where exactly does the mutual fund company get the money to pay it? Are mutual fund companies charities? Of course not, the mutual fund company takes the money for the commission from you, the buyer of the fund, right out of your investments, as an expense of the mutual fund.

Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

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