Staggering Loads

Which fund charges the highest load?

QUESTION: Which fund charges the highest load? Do they actually go up to 9% as per the criteria in the SmartMoney.com Fund Finder?

ANSWER: That's no typo — some funds really do charge investors exorbitant sales charges. Fortunately, however, such burdensome loads are the exception, not the rule.

Most load fees tend to fall somewhere between 3% and 5%. Of course, here at SmartMoney.com, our basic philosophy is that, with a few notable exceptions, paying almost any load probably isn't worth it. A load, as you likely know, is simply a sales charge paid to a financial adviser or a commission-based broker for selling you the fund. The problem with loads is that they immediately slice off a portion of your returns. So unless you are certain that a load fund will beat its no-load peers, why buy it?

But we digress. Going back to your question, right now there's just one portfolio in the Morningstar database — the Templeton Capital Accumulator fund (TECAX) — that imposes a load as great as 9%. Those share classes are closed to new investors, so it's only the existing shareholders that must bear this burden when they invest additional money. The fund company rolled out a new share class for new investors, but its fees are no bargain, either. New shareholders can get into the $351 million portfolio only by promising to invest a fixed amount each month for 15 years, with a minimum of $50 a month. Investors are charged decreasing loads on each contribution as the years tick by, ending the 15-year period at nearly nothing, says Matt Walsh, a spokesman for Franklin Templeton Investments. But on any contribution of less than $1,500 a month the load starts at an astonishing 50%. Over 15 years, the sales charge averages out to 3.33%, Walsh says. And that makes even the fund's peer-beating three-year annualized return of 5.8% look pretty paltry. Of course, that load would eat up less of your contributions should you contribute $1,500 or more, but if you're looking for a fund with a $50 minimum initial investment, allow us to suggest some fine no-load options.

And while we aren't aware of any other funds with 9% loads, a screen of Morningstar's database reveals a few that come awfully close: the Fidelity Destiny I fund (FDESX) and Fidelity Destiny II fund (FDETX) each levy a sliding front-end load beginning at 8.67% for existing shareholders, and a handful of Smith Barney funds and the Eagle Growth fund (EGRWX) aren't far behind, demanding 8.5% loads up-front. Like Franklin, Fidelity recently introduced a share class for new shareholders who put in as little as $50 a month in the funds for 10 years and will pay an average 3.33% load over that time.

Fortunately, such extremely high loads are rare these days. Over the years, the median front-end load (meaning you get charged on your contributions, not your withdrawals) has declined to 4.75% from 8.5%, according to a recent Securities and Exchange Commission report on fund fees. During that period the number of no-load options increased dramatically. Today mutual fund assets are nearly evenly divided between load and no-load funds.

Why do so many investors still go the load route? Certainly many have a good relationship with their broker or financial adviser and trust their picks. But other investors simply don't realize how much money they pay, says Sheldon Jacobs, editor and publisher of the the No-Load Fund Investor newsletter. His advice? "Pay a lot of attention to expenses because it's the one thing you can control. You can't control the company, you can't control the market, you can't control your money manager — but you can control expenses."