While writing the last blog, I realized I wanted to follow on and briefly discuss Front Load fees.
I hadn’t thought about front load fees for a long time. This is something that I thought had largely disappeared decades ago. But I ran across some articles that were talking about a well-known financial commentator who uses a network of “advisors” that push mutual funds with front load fees.
I really don’t see a justification to get such funds. I actually think they are pretty rare these days.
A front load fee is taken out as soon as you invest. And they are steep. I believe 4% is common, and from what I read, they can be 7%. So, you invest $100, they take $4, or $7 right off the top, before you get to earn anything. It is a one time fee.
The cuts your investment off right off the bat. You’re only making money on $96, not the $100 you put in, and it’s going to take some time to bring that back up.
If this was your only option, you might just have to put up with it. But it absolutely is not.
I haven’t seen funds with front loads in a long time, so my guess is that this usually occurs when you are being sent to an advisor. In the case I read about, the talk show host recommends you to a local advisor, who probably kicks back money to the talk show host for this privilege. Then, the advisor steers you to these front load funds. If you buy, this is a nice juicy profit for the advisor right off the top. Doesn’t matter if the fund ever performs for you, they get their cut right now.
I think these funds are to be completely avoided. No front load funds are so common that is hard to imagine some fund would perform so wonderfully that this could be justified.