Jimmy the Greek

December 10th, 2009 at 3:46 pm

I think the advisers should have to disclose how they are compensated!!

The dude

December 15th, 2011 at 11:22 pm

How can I really determine if my financial advisor that works thru MorganStanley, but purchases mutual funds thru Fidelity & Vanguard for my accounts (my advisor gets a quarterly fee, and I know there is another commission ((or front-end load))being paid by the mutual fund. BUT WHO GETS IT? The NAV on the purchase day was about 5% less than what I had to pay, so it is obvious that someone got a commission.
How do I prove who got it?

Matthew Arndt, CFA, CPA, CFP

December 16th, 2011 at 10:09 am

Why do you need to prove anything? Why not just can the Morgan Stanley broker and hire a fee only advisor and eliminate the mystery altogether? Don’t you find it a bit troubling that you are not sure how much your advisor is getting paid; the very person that is supposed to be watching over your money?

Your broker being paid by you and the mutual fund company is like an attorney being paid to represent both sides in a case. This would obviously be a serious conflict of interest. How comfortable would you be with that? The same holds true for your broker. The buyer and seller have competing interest and should be represented by two different parties.

If your broker is receiving a fee from you and collecting commissions and 12b-1 fees from the mutual fund companies, then essentially your broker is brokering both sides of the deal. He’s acting as a duel agent. This is legal and goes on much more than most investors realize, but in my opinion, this is a very unethical act.

There are a variety of ways for a financial planner to get paid by selling you a mutual fund or a variable annuity. Many have an ongoing trail commission (called a 12b-1 fee) ranging from 0.25% to 1.50% annually. Sometimes this is in addition to a large upfront commission. You should refer to your prospectus to see the total costs and the then check the copy of your application to see what commission your financial planner is being paid. Obviously if your planner is charging an annual fee on top of this then he’s “double dipping”. This is unfortunately all too common, and your advisor should not be charging an annual fee and a commission, in my opinion.