Sorting Out Broker Fees
A Merrill Lynch broker told me that mutual fund expenses will even out regardless of whether I buy Class A, B or C shares. Is this true?
Not exactly. But at least your broker didn't try to sell you the bill of goods that Class B and Class C shares levy no sales charges. They do.
A quick rundown on fund alphabet soup: Class A shares come with front-end commissions and small (on the order of 0.25% per year) 12b-1 fees, which are also used to compensate brokers. Class B shares carry fatter 12b-1 fees (typically 1% per year), combined with gradually declining redemption fees. Class B shares usually convert to lower-cost A shares after a period of time. Class C shares also come with high 12b-1 fees, along with a 1% redemption fee that usually disappears after one year. Class C shares generally don't convert to A shares.
Total costs for owning each share class will vary depending on how long you hold the shares, what your return is and what the size of your investment is. With A shares, for example, you get a break on the load when you invest amounts beyond certain break points; those discounts aren't available with B and C shares. To estimate how much you'd pay in fees for each share class, go to the NASD's Mutual Fund Expense Analyzer.
Got a question? Ask Kim at firstname.lastname@example.org.