The Mutual Fund Swap

This was written by Kris Venne, the Certified Financial Planner in our Asset Management group:


Its 3:35pm on a Wed., your phone rings – it is your “advisor” over at MerFargonley. Conspicuously its pretty close to month end, say March 24th.

“Hey Mike! Hows it going? How’s Sandy (your wife)? How about little Mikey?”

Once you get through some of these oddly uncomfortable pleasantries, here it is, the reason for the call:

“So I was looking at your IRA account, and that social media UIT we got into (The friend  opportunities fund) comes due in a few weeks here and I wanted to talk to you about getting you out of it and into this emerging market dividends mutual fund.”

There is enough going on here for me to talk to you about that it does not even matter what happens the rest of the conversation.

First of all, the 1 year UIT that this  got you into came with a 3.25% upfront “sellers concession.” It was introduced to your “advisor” by a wholesaler who supplied his office with a free lunch and a 15 minute presentation. (It was baked zitti, salad, and a cookie tray – wasn’t great but who complains about lunch that just arrives in your office at 11:45?)

This wholesaler covers your “guys” territory, he travels back and forth across your state hitting brokerage offices along the way.

That particular day your “advisor” was pretty enticed by how good a social media fund sounded, the slides with pictures of grandparents logging into Facebook really was what did it for him. “This will be so easy to sell to my clients” he thought to himself “especially….[you].” So he told you to sell what remained of your Growth Fund of America for this UIT, ostensibly containing the next Apple. He took home an extra couple of thousand dollars in gross sales that month, and you dreamed of your next statement. So here you are, a year later, faced with the option of having him roll it into the updated version of the UIT (your “guy” would only earn about 1% on this “rollover”, not as exciting as what is coming next).

This new fund earns him a cool 5.75% of what is left. How can he do this you say? Because his compliance officer is not really going to bat an eye because he is not taking you from one 5.75% mutual fund to another, instead it is a totally different product he is switching you out of.

Awesome, you are that much closer to being ready for your golden retirement now!

This sort of crap goes on every single day, all day, across this country . . .

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