
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, September 4, 1995                   TAG: 9509060006
SECTION: MONEY                    PAGE: 6   EDITION: HOLIDAY 
SOURCE: MAG POFF
DATELINE:                                 LENGTH: Medium

BYPASSING BROKER: YOU SKIP FEES, YOU DO HOMEWORK

Q: I have about $25,000 to invest in a mutual fund. Why should I go through a stockbroker and pay a fee vs. using a no-load fund? What disadvantages would there be in using a no-load fund, and what fees are involved in that? What are the disadvantages of my investing in a mutual fund without going through anybody and doing it myself?

A: Stockbrokers exist to give advice to clients on choosing the best stocks, bonds, mutual funds and other investments suitable for their individual needs. Clients pay a commission in return for this advice. Many people lack the time or self-confidence to make their own selections.

If you are willing to do your own research, you should buy mutual fund shares on your own behalf. There is no essential difference in performance between commission-based and no-load funds, so there are no disadvantages to buying on your own. You will save the sales commission, although you will pay management fees to the mutual fund.

You must do your homework by reading financial newspapers and magazines. You should learn which funds have investment objectives that meet your own goals. Aggressive growth funds, for instance, are better suited to young people than they are to retired people.

Call the funds in which you have an interest, then read the prospectus carefully for information about the funds' objectives and fees. You may want to invest in more than one type of fund in order to diversify your holdings.

Q: I am a retired federal employee who was illegally taxed by the State of Virginia on my federal pension benefits. Like many others, I rejected the settlement offered by the state. That means that any reimbursement now depends on the outcome of a court case involving that taxation.

I have not seen anything in the newspaper about this suit in a long time, and I am wondering about the status of the case.

A: The case was argued before the Virginia Supreme Court on June 7 and a decision is pending.

Michael Kator of Washington, D.C., the lawyer for the federal retirees, said he expects the court to hand down its opinion Sept. 15.

Kator asked people in your position - those who rejected the state settlement - to contact his office to leave your name and address. He will then put you on his mailing list for distribution of information about the case. Kator's office number is 202-898-4800.

Q: My investments are primarily with banks or through a bank trust department, mainly because of the FDIC insurance and backing of banks. The performance has not been very good, the monthly statements leave a lot to be desired, the fees are high, and dealing with them is not very convenient.

I've recently contacted some discount brokerage firms and found out that they offer some sort of security by the Securities Investor Protection Corp. I am enclosing a pamphlet. Is this legitimate protection, or is it more or less eyewash? Also, if investing directly with a mutual fund, particularly one of the smaller ones, what's to keep the manager from walking off with his investors' funds?

A: As the pamphlet you sent states very clearly, the insurance from the Securities Investor Protection Corp. merely ensures that you will receive return of your stocks (and cash up to a limit of $100,000) in case the brokerage house itself should fail. The fund does not cover loss of principal in an investment that goes sour. In no case can this protection, even though it's legitimate, be compared to FDIC insurance on bank deposits.

Many products at banks are not protected by FDIC insurance, either. Stocks, bonds, annuities and mutual funds purchased from a bank are not protected in the same manner as FDIC insurance covers standard bank deposits.

As you point out, however, the return is low on traditional bank deposits that are completely insured. Low risk means low earnings.

If you are dealing with an out-of-town broker who called you, you should terminate your relationship and deal with a local broker you know - one who is willing to explain the SIPC type of protection. Find a broker with whom you are comfortable to discuss reasonable alternatives to bank deposits that have relatively little risk.

There is nothing to prevent the independent manager of a small mutual fund from walking off with clients' money. Such frauds have been committed. Stick with large, nationally known funds whose names are recognized in the industry. Do not respond to calls made to you by a fund. You should be the person initiating the contact in all cases involving money.

by CNB