February 12, 2018

WTOP Interview: Mutual Fund Fees: How To Know What You Are Paying For And Why

LISTEN NOW! We uncover the facts about mutual fund fees. Use this to know if you are paying too much.
Dawn Doebler, CPA, CFP®, CDFA®

Interview Transcript:

Shawn Anderson: An estimated 94 million people invest in mutual funds. So, there's a good chance if you have a retirement or a brokerage account, you own them. Knowing about the fees you're paying can be very confusing since they affect your overall return, it's important to understand what you're paying for and why. 

Hillary Howard: Well let's get some help from Dawn Doebler, co-founder of Her Wealth and Senior Wealth Advisor at The Colony Group. Hello Dawn!

Dawn: Hi Hilary. 

Hillary: Tell us why you think this is a really important issue for investors. 

Dawn: Well I've noticed it can be very confusing for people to try to figure out exactly how much they're paying in fees. So, that's partially because it's somewhat complicated the way the industry has structured this, so we wanted to break it down and make it easier for people to understand.  Basically, mutual funds offer various share classes and if you're interested in learning a lot more detail about that, you can take a look at the article but to simplify; if you have funds that are outside of a 401(k)  or a company retirement plan, you likely own A, B, C or I shares and you can figure out what you own by just looking at your statement.

So in article is a chart that explains how each share class charges fees in a different way. So, you want to know that even though you're investing in the same underlying assets, the share class that you own actually determines the return that you'll receive. So our hope is the article will help the listeners to really kind of demystify what generally is a more complicated area, thus meaning that people don't really take a look at this.

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Shawn: And that article is on wtop.com. Since it can be hard to tell what we're paying for in fees, where should we go to find this information?

Dawn: Well, we wanted to simplify this by saying that there are really two types of fees: fees that you can see and fees that you can't see. So, fees that you can see, where using this terminology because it's usually pretty easy to find out how much these are because they're charging you directly. If you look at your trade confirmation or your account statement you can see the exact amount that you're paying. So, some examples are front-end loads or back-end loads or redemption fees and it's important to know what these are, they can be relatively high. For example, a front-end load can be as high as 5%, but again you should be able to see that.

Also you're charged fees that you can't see and because you're not charged these directly it's a little bit harder to know how much these are. It does take more work, so one good way to determine that, is to go to the prospectus and find what's called the fee table. Usually you can find the prospectus online and better yet if you're working with an advisor, simply ask them, “give me a list of my mutual funds, tell me how much I'm paying.” And I want to say here that fees are a required disclosure, so it's a fair question to ask people how much are you paying and one note about 12b-1 fees, those are fees that are paid to brokers, advisors like The Colony Group can't accept those, but there is a trade-off, if you're not paying a 12b-1 you're usually paying an advisory fee. So, you want to add everything up and see what you're paying, bottom line. 

Hillary: Quickly before we go, should fees drive our investment decisions?

Dawn: Well Hillary, we do want to be clear here that we don't want to imply lower fees are always better because there can be funds that have higher fees but your net after fee return is better and you may have a reason to own a fund for diversification purposes. So, our real point here, is that we think that you should be fully understanding, what's your fees structure and it really is as simple as taking a look at your statement, reading our article and digging in a little bit deeper to find out the information. 

Shawn: Alright Dawn, thanks so much. Dawn Doebler with The Colony Group, for more go to wtop.com, search Her Wealth.

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Dawn Doebler, CPA, CFP®, CDFA®

Dawn’s experience spans more that 25 years providing wealth management, financial planning and corporate finance solutions for clients. As an MBA, CPA, Certified Financial Planner (CFP®), and a Certified Divorce Financial Analyst (CDFA®), she is uniquely qualified to understand the challenges and financial needs of clients from executives to entrepreneurs, as well as single breadwinner parents. Dawn is a weekly contributor to WTOP radio.