How Fund Pricing Has--and Hasn't--Improved
Unbundling fees is a clear improvement, but a couple of problems remain.
Let's Start With "A" (Shares)
Once upon a time, those who invested in U.S. funds through a financial advisor paid entrance fees, in the form of front-end sales charges. There were no-load mutual funds, but advisors wouldn't recommend them, because how would they then be paid? Exchange-traded funds did not exist. The only available funds were those that collected at the door.
This system had its benefits. For one, most such funds had low ongoing expenses. The initial payment could be steep, running up to 8.5% of assets, but long-term buyers-- those who thought in terms of decades rather than years--usually fared well. For another, the sales load declined with the size of the investment. Pony up $1 million, and funds would waive their up-front charges altogether.