Fund expenses 101

Can someone pls tell me what if anything I'm missing here regarding mutual fund expenses (or potential expenses)?

1 - Expense ratio costs

2 - Loads

3 - "misc fees" (eg buy/sell/brokerage transfer fees)

So the answer would be "nothing" then?

Well, each fund company is different. The only way you're going to learn the specifics, is to read the prospectus for the fund you are interested in. Some funds have all kinds of fees. Others don't.

Well, sure. I was basically looking for the main types of fees, though, ie obscure/fairly/rare/"oddball" fees aside. Do most fees fit one of these 3 categories?

Hah! You've been dupped.

Don't forget the very important information about fees found in the Statement of Additional Information

The expense ratio covers only the ongoing costs of administering the fund. It does not cover the trading fees that the fund must pay when the manager buys and sells securities in the fund’s portfolio. These highly variable -- and hidden -- charges can add up to more than the expense ratio.

Consider using ETFs

huh? dd, please edumacate me on this a little. the buying and selling costs seem to me to be PART and PARCEL to the overall administration of the fund. in fact, what most people call an Expense Ratio is more accurately called (in the prospectus) as "Annual Fund Operating Expenses". and these, sir, are the COMPLETE expenses paid by any shareholder. now, they may not be as defined as someone may like to see (they are communicated under general categories of costs); i can most certainly assure you that there are NO hidden costs that you are being charged elsewhere.

in fact, i sorta think you knew this in the first place. its ok to be wrong about something, but when you are intentionally misleading about fact ... it makes us think Hillary Clinton is spending too much time commenting on Kiplingers.

by the way, i just had to run the numbers.

i took a normal fund off of the shelf. Templeton Growth Fund. it has an expense ratio of 1.01%. now YOU SAID: These highly variable -- and hidden -- charges can add up to more than the expense ratio.

so lets see if what you SAID even makes ANY sense?

their A share class contains 30 BILLION DOLLARS in assets of clients. you do realize, do you not, that 1% of 30 BILLION DOLLARS is a still quite impressive $300 million dollars.

do you really believe that a company would pay a fee of $300 million for simple transaction costs that two monkeys could do in a room in the basement of their corporate headquarters? remember, the "transaction costs" as you call them are simple electronic trades. further, you would have to be a DUFUS of biblical proportions if you were paying $300 million dollars a year for trades when you could open a Scott Trade account and get $7 trades.

oops, that fund is a global fund so it will be making some international trades at $11 per trade. i suppose that could make up the other $299 million you were talking of.

shame! shame on you!

This article explains the issue clearly:

http://www.forbes.com/forbes/2005/0131/108.html

i consider Forbes a reliable source. it certainly outlines more definitively what DD was talking about.

however, if the situation is as described, then the expenses are either:

1) included in the gross operating expenses of the FUND in which case the ER holds true.

2) included in the gross liabilities of the FUND COMPANY in which case it gets rolled up into the funds pro-rata.

this is what i meant when i said: now, they may not be as defined as someone may like to see (they are communicated under general categories of costs); i can most certainly assure you that there are NO hidden costs that you are being charged elsewhere. to which i would elaborate: "that you are being charged elsewhere that are not indicated in the assets and liabilities of the fund".


finally, i will ADMIT, my rebuttal might have been overly vociferous. that said, i stand by it in general terms. though you can find an AMEX fund that would certainly meet the criteria DD references, even the article in Forbes makes it less of an issue "industry wide" than does DD's comment about big red being a dufus. i get my shorts bunched up anytime i say "always" and "never" and am usually pretty good about not doing so. its like the Oprah trailer i saw on tv today. tomorrow she has a guest on who is pregnant ... the guest is a man! Oprah offers nothing else to explain it. i told my wife that was "bull-xxxx" to which she promptly corrected me. the guy on tomorrow is in fact pregnant and carrying a baby inside himself. of course, Oprah failed to mention he was born a she and had a sex change and i was too quick on the trigger to not think about how Oprah might be being tricky. just like this situation ... tricky.

to be clear, if we use the magellan fund in the article, we are talking a fund company charge of 35 ten-thousands of a dollar in trade costs. this MOST CERTAINLY is not anywhere NEAR the same level as the expense ratio. nor is it significant enough to have big red factoring it into his decision making process to keep costs low.

by the way, if this is true and that investors are being charged something for which they are not being told ... the same holds true for EVERY fund or ETF, index or otherwise ... right?

my bigger worry would be having an American Express fund in the first place.

I'm a fan of transparency. In the case of brokerage fees, the fact that they are hidden and have to be ferreted out raises red flags. Why not disclose it up front if there is nothing to hide? I find their excuses specious. In the past, and indeed even currently, the use of soft dollars was not something they wanted generally announced to the public. I understand their reasoning. And if people don't demand full disclosure it's not suprising that we don't get it. At least brokerage fees can be known. As the article stated near the end, the effect of of poor price execution is probably impossible to pin down. Obviously, we ultimately know how the funds perform and can compare it to some passive benchmark and relative to their peers... and I have no problem with them making a profit either. I just feel that I have the right to the full picture in a manner that doesn't require a forensic accountant. Others may not care or understand, but I want the information. I read all that stuff, prospecti, annual reports, addenda, footnotes... in their entirety. Maybe I'm odd for that.

blix, first off ... i think you are a little odd for that. that said, odd is not always a bad thing. i agree that as prospectuses (prospecti?) are formated for the least sophisticated investor they should also be useful for the most sophisticated investor. remember that a mutual fund is rightly an investment company. not meaning fidelity but meaning fidelity magellan.

just as any publicly traded company needs to have it books balance so that capital gains, dividends, taxes can be determined (after lights, water, payroll is subtracted), so does a mutual fund.

the question gets to be how much information do you want to know and to what level of detail is both necessary and reasonable.

in other words, if youf fund invests in Cisco, do you really do the research to find out the yearly phone bill for Cisco --- would you even want that information or use it if it were available? i am certain that it is specifically spelled out in some document that is an addendum to some document that is an appendix to some filing at the SEC. and if one person wants it, does that mean that it should be printed in every single document where it is not printed? i would opine that it would cost more in INK to print the information than could ever be saved in switching long distance service from Sprint to AT&T.

i am not a CFA and i am sure that one who is could give a better analysis than i. i am also pretty confident that questionable activity or outright dishonesty is very rare. in fact, its probably as rare as some dude being pregnant.

blixet, if the transaction fees were more clearly annotated, only folks like you would be reading it anyway. yet, folks like you are not likely in the kinds of funds that are spending wildly outrageous transaction fees. sure, i vote for more information (and in the age of the internet, you can simply post it all on your website and it wont cost much to do it). but in reality, i want to know if we really have a problem and so far i think we have a tempest in a teapot.

I think in the case of brokerage fees it could easily be folded into the overall expense ratio without draining anymore barrels of ink. They already publish the annual turnover rates so why not inform us of the cost? Oh well...

i am not a CFA and i am sure that one who is could give a better analysis than i. i am also pretty confident that questionable activity or outright dishonesty is very rare. in fact, its probably as rare as some dude being pregnant.
This is from an SEC report of their investigation of soft dollars:

"While most of the products acquired with soft dollars are research, we found that a significant number of broker-dealers (35%) and advisers (28%) provided and received non-research products and services in soft dollar arrangements. Although receipt of non-research (or non-brokerage) products for soft dollars can be lawful if adequate disclosure has been made, our sweep inspections revealed that virtually all of the advisers that obtained non-research products and services had failed to provide meaningful disclosure of such practices to their clients.
......

We also found that, even with respect to research and brokerage products and services within the safe harbor, many advisers' disclosure of their soft dollar practices was inadequate, in that it did not appear to provide sufficient information to enable a client or potential client to understand the adviser's soft dollar policies and practices, as required under the law."

than does DD's comment about big red being a dufus. .

I did not call big red a dufus.