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No Fee No Loads From, Yes, Brokers


Personal Business: Smart Money

No-Fee No-Loads from, yes, brokers

No-load mutual funds appeal to do-it-yourselfers, who can buy directly from fund-management companies and save on the "load"--a sales fee levied by brokers. The drawback of the no-loads is that, in buying funds from more than one company, you have to deal with each separately. And the paperwork can pile up. Each fund generates its own statements.

For years, discount stockbrokers Charles Schwab, Fidelity Brokerage Services, Jack White, and Waterhouse Securities have helped investors by offering no-load mutual funds, collecting all the reporting on one statement--and charging for the service. The latest wrinkle from Schwab and White is no-load funds the way they're supposed to be--without fees.

Schwab's new No Transaction Fee (NTF) program so far includes 90 funds from nine fund companies. That's a small part of the more than 600 no-loads still available for a fee through Schwab's Mutual Fund Marketplace (MFM). White's no-fee list has 90 funds from 26 companies. Both firms hope to expand the programs. Waterhouse plans a no-fee program; at Fidelity, it's under consideration.

LONG HAUL. With the no-fee service, the fund pays the broker an annual 0.25% to 0.30% of the average monthly balance. If the fund already levies a "12(b)-1" distribution fee, the money comes from that. If not, the fund company pays. "The funds can pay because we do record-keeping, and for some, displace some marketing costs, too," says Tom Seip, an executive vice-president at Schwab.

Schwab's NTF program gets small investors around MFM's $29 minimum transaction fee. That minimum makes small purchases and redemptions costly, especially those of $1,000 or less. NTF makes it practical to set up a monthly investment regimen. The minimum is the one set by the fund: usually $1,000 for the first investment and $250 for additional.

White's no-fee program is for bigger shooters. There's a $5,000 minimum per transaction--or investors must pony up the $27 minimum fee.

You can't use no-fee programs for frenzied fund-switching. Schwab limits investors to four short-term redemptions--defined as sale of shares held less than six months--in any 12 month period. White has a 30-day holding period. Breaching the limits means transaction fees. Says Seip: "We've designed this program for long-term investors." Edited by Amy Dunkin Jeff Laderman


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