Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, June 28, 1993 TAG: 9306280012
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Or you can call a toll-free telephone number and, in many cases, make similar investments without a sales charge.
Which method should you choose?
Like most financial decisions, the answer may not be the obvious one. It depends on who you are.
If you are willing to study the nation's 4,000 mutual funds and feel comfortable choosing among them, call the 800-number.
But if you don't know an intermediate bond fund from an aggressive growth fund, then perhaps you can use some help. In such a case, the broker's advice is likely worth the commission or fee you'll pay.
What you are paying for is "the expertise of the adviser," said J. Tyler Pugh, vice president and branch manager at the Roanoke office of Wheat First Securities.
He compared the situation to developing a pain. You can either research medical information to diagnose your own case or you can do what most people do: pay to see a doctor.
People confident of their abilities should buy their own funds, Pugh said, but others should seek advice. "First of all, you want to be sure you need a mutual fund." While mutual funds are popular among small investors currently, they are but one of many options.
Richard Wertz, vice president at the Roanoke office of A.G. Edwards & Sons, agreed that anyone with the knowledge should call the fund he wants.
But most people can't distinguish between a growth fund and an income fund, Wertz said. "A lot of people don't have the knowledge to make a decision."
Sometimes, he said, independent investors have trouble reaching the fund by phone if they want to sell their shares.
He compared a broker's services to that of an auto mechanic. Most people with car problems take their vehicles to mechanics, knowing they lack the skill to make repairs themselves.
In a restaurant, Wertz said, people tip the waiter 15 percent. "I don't think 4 or 4 1/2 percent is too much" to pay a securities broker for his expertise and service.
Some fund families, such as the popular Fidelity, charge sales fees of 3 percent without advice, Wertz said.
And often, he added, a high annual service charge offsets the lack of an up-front charge or load.
Banks have some advantages over brokers when it comes to selling funds. The neighborhood branch is convenient and the client's money probably is already there.
People like doing business at a local branch, says Charles H. Rand, executive vice president for consumer services at Crestar Bank.
They can move money back and forth among funds and bank accounts, he pointed out, and even access the fund through teller machines.
Customers who have never met a broker are acquainted with the branch manager, he pointed out.
Anyone who inquires at Crestar - or any other bank for that matter - is referred to a representative licensed to sell stocks, bonds, mutual funds and annuities.
The fee pays for the services of those representatives, said Rick Arthur, mutual fund manager at Central Fidelity Bank. They talk with customers to help them meet their own needs.
The representatives figure out what's right for the specific customer, Arthur said.
Richard Wagoner, head of the Capital Management Group at First Union Corp., said representatives act as personal investment counselors.
Often they ignore the fee, he said, and recommend that a specific customer invest in a certificate of deposit instead of an equity fund.
One bank, however, disagrees with that analysis. Last fall, Signet bank dropped the up-front sales charge, often called loads, for its own funds.
Instead, it adopted a redemption fee of 2 percent that disappears after five years. If you hold the shares for at least five years, all fees and commissions (except routine annual fees) are waived.
"Load funds are not a good deal," said James Eads, president of Signet Financial Services. Banks that keep them "miss the boat" because commissions are "going the way of the wind."
The redemption fee is different, Eads said, because people should plan to stay in a fund for at least five years.
The June/July issue of "Your Money" magazine offers advice for people faced with paying a commission for a mutual fund purchase:
Investors should keep in mind that there are only two reasons to buy load mutual funds. One occurs when the investor is getting sound advice for the money. The other is when the fund's performance is so outstanding that it is desirable despite the load. So check the return of the recommended fund.
The broker or sales adviser should be someone you know and trust. Listen to see if he or she is asking you about your own investment goals and needs. Mutual fund investing should be part of a complete financial plan.
Are you being sold a bond fund based only on yield? Make sure the broker or sales representative tells you about the risks to principal in a bond (or a stock) fund.
Is the bank or brokerage house pushing its own funds or offering an array of choices from different sponsors? Ask for performance data compared to other mutual funds of comparable risk.
Are you being sold on convenience? Then be sure how easy it is to get account information and to switch from one fund to another. Most large mutual fund families offer round-the-clock, toll-free telephone numbers for information, sales and for investors to switch money from one fund to another. Those who deal with banks and brokers should enjoy comparable convenience.
by CNB