fi nancialforum Know the Costs U

Mutual Fund Costs There are numerous costs associated with having mutual funds. MOAA’s Mutual Fund Calculator can help you analyze the expenses. Visit www .moaa.org/calculators, and click or scroll to Investment Calculators.

56 MILITARY OFFICER JANUARY 2016

Do you know how much you’re paying for fi nancial advice? There are many possible charges of which you might not be aware. By Lt. Col. Shane Ostrom, USAF (Ret), CFP®

Unlike most consumer purchases, fi guring out the cost of fi nancial advice and investing can be like an Indiana Jones expedition. Do we really know how much we pay?

Some advisors quote a fi xed price for the job desired. Suppose you want a com- prehensive fi nancial plan that considers savings, investments, retirement, insur- ances, taxes, and estate-planning issues. That might cost $3,000, for example. The price varies based on the job’s complexity. Or you might be quoted an hourly rate and told it will take eight hours. Some places charge a percentage based on assets under management (e.g., 1 per- cent). It is common for the percentage to decrease as asset amounts increase. Think volume discount. Your advisor might charge a commis- sion. This is a sales charge applied to each transaction, such as a buy or a sell. This could be a favorable payment method if you don’t expect to have many transac- tions. For instance, you buy an exchange- traded fund through your online broker for $8. A full-service broker will charge more, but you get extra service for the extra cost. Some investments and products charge

an up-front sales charge, called a “sales load,” which is applied by the company that off ers the product, not your fi nancial advisor. Say you buy a mutual fund in your account. An up-front sales charge might be applied by the mutual fund company.

Some companies off ering products also apply back-end or surrender charg- es. If you buy a mutual fund or an annu- ity, for example, and later sell all or part of it, you are charged a fee to get out of the product. Your investment or insurance product

charges fees to own or hold the product. Mutual funds have annual management fees, 12b-1 services (marketing fee), and possibly other miscellaneous fees. Insur- ance products have administrative and in- surance fees. Insurance products include the insurance charge (called mortality- and-expense or cost-of-insurance fees), surrender fees, option/rider charges, and management fees within the mutual funds within the insurance product. This is an abbreviated primer. There could be other charges. Most likely, you are paying several layers of these fees. For example, you could pay 1 percent of as- sets under management, an up-front sales charge, and costly mutual fund annual management/12b-1 fees. Hopefully not. In- surance products in individual retirement accounts can get expensive. All of this is spelled out in the fi ne print

of your account contracts and prospec- tuses. Your fees should be consistent with your planning objectives.

MO

— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to beninfo@moaa.org.

PHOTO: SEAN SHANAHAN