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Buy load fund, skip load
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October 11, 2000: 12:28 p.m. ET
There are ways to get into a good fund without paying the piper … much
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - Any financial planner will tell you there are at least two ways you may avoid paying a front-end charge to get into a good load fund: invest $1 million, which would qualify you for a load exemption, or invest in the fund through your 401(k) if it's offered, since loads are often waived for plan participants.
But there is another way, said certified financial planner Rick Applegate, president of Strategic Capital Concepts in Allison Park, Pa.
If you work with an independent financial adviser or planner who has an established relationship with a discount brokerage, he or she may have access to a series of load-waived funds that they can purchase for their clients.
 That doesn't mean you won't pay anything, Applegate said. You will have to pay your adviser a fee of some sort, often equivalent to a certain percentage of your assets presuming you meet the adviser's investment minimum.
So rather than pay a 5 percent load -- or $2,500 -- on a $50,000 investment in a fund, you might pay the adviser an annual fee equal to 1 percent of your assets in the fund, or $500 the first year.
That's still money out of your pocket, but it means that 4 percent of your money that ordinarily would go to the load immediately is instead allowed to compound in your account in the first five years of your investment.
What's more, Applegate said, you get administrative help and investment guidance in exchange for adviser charges, whereas with a load, you only get the privilege of investing in the fund.
"It's far better to get the financial advice," Applegate said.
With or without an adviser
If you go to a discount brokerage on your own, you will have a harder time getting access to load-waived funds that interest you, but there may be other advantages.
At Fidelity's FundsNetwork, for instance, you might get to pay a lower initial minimum investment to get into the fund -- $2,500 instead of the $10,000 some funds insist on -- and that would automatically reduce the load you pay, since 5 percent of $2,500, for example, is far less than 5 percent of $10,000.
 At Schwab, do-it-yourself retail investors have access to 1,200 no-load, no-transaction-fee funds, some of which are load-waived, such as those offered by General Electric, a Schwab spokesman said.
But your choices for load-waived funds broadens if you're using one of the 6,000 advisers with a relationship to Schwab, since they have exclusive access to other load-waived funds from fund firms such as Putnam, AIM, MFS and Oppenheimer.
If you don't have an adviser and are a Schwab customer, you can use the brokerage's AdviserSource, but only if you have a minimum of $100,000 to invest, the spokesman said.
Fidelity FundsNetwork has an established relationship with 900 registered investment advisers who are given access to 1,200 load-waived funds from firms, including AIM, Alliance, Calvert and the Delaware Group, a spokeswoman said.
Fidelity is currently running a pilot adviser referral program in three areas -- Millburn, N.J., Atlanta and Dallas -- with plans to roll out to additional cities in the next few months. To qualify for a referral, however, you need a minimum of $250,000 to invest, the spokeswoman said.
If you want to cut ties ...
Contracts with advisers may be terminated at any time, Applegate said. So if after a year or so you no longer need the adviser's services, you might choose to end the relationship. By doing so, you would cease paying the annual management fee, but your account at the discount brokerage most likely would be reclassified as a retail account, and you would lose access to the load-waived funds available only through advisers.
Of course, said Applegate, "it would be myopic investor focus to establish the relationship just to get your hands on net-asset-value funds." He noted that one uses an adviser for investment advice and management, and that the primary reason to choose a fund is because it has a good track record, strong management, reasonable expenses and fits well with your portfolio, not because the load is waived.
Know what to ask
When searching for an adviser, one of the first things you should establish is how the adviser gets paid, Applegate said. Some advisers work on a fee-only basis, others on commission-only basis, and still others on a combination of both.
Registered investment advisers are required to give prospective clients a copy of the second part of what's called Form ADV, which is essentially a filing with the appropriate state or federal authority that discloses, among other things, the adviser's fee structure.
You should also check to see whether and how they can get you access to load funds without paying the load.
Of course, all of that may be a moot point if the adviser only works with people whose investment minimums far exceed yours. It's not unusual for advisers to require that their clients have between $250,000 and $500,000 to invest, said Bill Dougherty, president of Kanon Bloch Carre, a mutual fund investment consulting company, although Applegate knows of advisers who only require $100,000 accounts.
But if your portfolio is somewhat shy of those amounts and you and the adviser like each other, you might consider other ways that make financial sense for both of you to work together, presuming they fall within the boundaries of the adviser's compensation structure.
For instance, an adviser may be able to charge you an hourly rate to set up your account at the brokerage and buy the funds you request, or he or she may offer to charge a one-time only asset management fee.
Whatever you choose, keep in mind finding an adviser who is right for you requires some homework on your part.
"Bottom line, it comes down to shopping," Applegate said. 
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