Why should I pay a sales charge for a mutual fund?
Bank-affiliated brokers are hearing this pesky question more and more from investors who now can easily dial a toll-free number and select from a wide array of top-performing no-load funds.
In the following commentary, Toby G. Mumford Jr., a vice president of Franklin Templeton Distributors, a firm that markets its load funds heavily through banks, makes a pitch for the value of broker assistance and the sales charges that result.
Choosing among the more than 5,000 mutual funds can be a daunting task. Information about mutual funds comes from a vast number of sources, including newspapers, magazines, radio, television, and even friends.
The growing impact of international markets has added more complexity, and many investors simply don't have the time or ability to track the changing financial markets. This is why so many investors choose to work with an investment representative.
An investment representative can provide the financial guidance and understanding necessary to make an informed investment choice and help keep clients abreast of market trends, new opportunities, and tax-law changes.
You can also explain different securities, the investment categories and objectives of mutual funds, and are trained to tailor a program to match a customer's individual needs and goals.
As your clients' lifestyles change, so may their financial goals. Thus, you are able to offer advice on how to modify an investment portfolio to reflect their changing financial needs.
Most no-load mutual fund companies provide only general information, and will not offer specific guidance, make recommendations, or discuss options other than the funds marketed by that company.
No-load funds have been referred to as "no help" funds, because typically investors must do extensive research on their own before making their own investment decisions. Investors who buy directly from the fund company don't have the benefits that an investment representative can provide.
Some investors may try to get advice by subscribing to financial newsletters. For the average investor, paying a mutual fund sales charge for the services of an investment representative is usually less expensive than private money management and much more individualized than a newsletter. After all, a newsletter cannot identify investment objectives or develop customized plans tailored to individual needs.
How does an investment representative help the client recognize the value of full-service investing?
Educating clients is an important role. You can take the time to discuss performance expectations, making sure your clients understand their investment objectives and the various risk-reward relationships.
Investment representatives can help clients get full-service treatment, for example, by reviewing their statements, sending out relevant articles, and by just being accessible, especially when the market is volatile. As one representative put it, "Why do you leave a tip at a restaurant? For the service. That's why you pay a sales fee to a broker. For the service."
Investment representatives can develop a personal relationship with their clients by providing ongoing services. Many investors panic when the market takes a downturn and need to be reminded of the importance of long- term goals rather than short-term performance. Representatives can offer clients some hand-holding during tough times and help clients realize that investing in mutual funds is a long-term plan.
You can explain investment techniques such as dollar cost averaging, show historical fund performance in both up and down markets, and also remind clients of the diversification and reduced risks that mutual funds can provide.
Giving full-service treatment to prospective investors, personalized to their needs and goals, can help you build and retain your client base.
