Do all mutual funds have 12b-1 fees?

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eschaef
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Do all mutual funds have 12b-1 fees?

Post by eschaef »

Okay, reality check for me, please.

The young teachers in my building are being stalked by the 403b insurance salesman from AXA Equitable today. Usually they just hang out in the teacher cafeteria, but now apparently they are inviting themselves into our classroom and prep rooms. Someone came into my room just before I left for my duty period and I thought it might be a good chance to ask a question without being cornered.

I asked what the expense ratios on their funds were. He said 1.2% and that that was a better deal than I could get with their competitor Valic. Then, he said if I was concerned about expenses then, for example, putting only 50% in [mumbo jumbo. I think maybe he said only half in a guarantee?] I could get the expenses down to 0.6%. I asked if there were any other fees. He said that of course there would also be a 12b-1 fee, but that I would pay that fee anywhere, even if I took my money to any company I wanted for an IRA. [He brought this up, not me.] I questioned this and said that all mutual funds have expenses as indicated by their expense ratios, but not every fund has a 12b-1 fee. He told me I was wrong, and that every mutual fund has a 12b-1 fee as well. I did then mention that with my IRA at Vanguard, I pay only about a 0.17% expense ratio for my fund. He again said that there would be another fee that I'm not aware of.

I still think he's wrong, but now I'm confused what he is talking about.

So, who is right?
indexmeasap
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Re: Do all mutual funds have 12b-1 fees?

Post by indexmeasap »

Of course you're right, sales people aren't the most reliable sources of information. VG funds have no 12b-1 fee.

https://personal.vanguard.com/us/funds/ ... =INT#tab=3

Mutual fund fees can be confusing. These wiki entries might help explain fees further:

http://www.bogleheads.org/wiki/Expense_ratios
http://www.bogleheads.org/wiki/Mutual_f ... onal_costs
OhioGozaimas
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Re: Do all mutual funds have 12b-1 fees?

Post by OhioGozaimas »

You are right. He is blowing smoke.

Go on Morningstar.
> Enter a ticker in the Quote box.
> Then click on the Purchase tab.
> Scroll down to Review Other Classes.
It lists loads, ERs, 12b-1 fees and minimums, etc. for all available share classes.

(As one random example, try AGTHX, for 17 share classes with 12b-1s from 0.00% to 1.00%)
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CABob
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Re: Do all mutual funds have 12b-1 fees?

Post by CABob »

I also think he is wrong and there is no reason for you to be confused.
Perhaps he was saying (without saying) that all funds available in your 403b plan have 12b1 fees.
Or perhaps the salesman was the one that was confused. I certainly don't want to suggest that he was lying. :twisted:
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Re: Do all mutual funds have 12b-1 fees?

Post by JW-Retired »

Only two possibilities: he is woefully ignorant about the mutual fund industry or he is lying. Either way you should never take anything he says as factual.
JW
ps: to look up any mutual fund fees: google the trading symbol, select yahoo, in yahoo for the fund select "profile", in profile it shows you all the fees and expenses.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

Good, that's what I thought. I guess what he said was just so unexpected that it threw me off. Oy! I really don't enjoy dealing with high pressure people.

And when I say they are stalking us, I'm not exaggerating. They have our names and have been seeking us out if we don't already have an account with them. I ran into a second salesperson in the copy room. He was just finishing up talking to another teacher and then focused on me.

Oh well. At the moment, I'm in grad school and have trouble even contributing up to the IRA limits, so I have another year before I have money beyond that to find a place for. Thanks so much for your input.
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Re: Do all mutual funds have 12b-1 fees?

Post by abuss368 »

Vanguard does not charge their Shareholder's 12b-1 fees.
John C. Bogle: “Simplicity is the master key to financial success."
nordlead
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Re: Do all mutual funds have 12b-1 fees?

Post by nordlead »

Based on this definition:
DEFINITION of '12B-1 Fee' An annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered an operational expense and, as such, is included in a fund's expense ratio. It is generally between 0.25-1% (the maximum allowed) of a fund's net assets.
He could think he is correct and it could have been a matter of communication. I know someone who sells life insurance and annuities (maybe other things, not sure), and we were talking about the TIAA Traditional which guarantees 3%. He asked me what the fees were. I of course answered $0, and he responded "there are always fees". Sure, maybe there is a fee for TIAA Traditional, but I don't care, since I'm getting my 3% as they said, so it is $0 fees to me (they could guarantee 4% and list 1% fees I guess). Maybe Vanguard has a 12b-1 fee, but it is baked into the listed ER instead of separate. You don't know what the 12b-1 fee is, but you don't care either as it is included in the ER.

Either way, I don't trust salespeople much, as they are trying to make a sale. And while he may technically be correct he isn't listening to you, therefore he isn't really trying to help you.
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Re: Do all mutual funds have 12b-1 fees?

Post by placeholder »

You can't have a "baked in" 12b-1 fee as that is a specific thing that must be listed separately although general fund expenses represented by the ERs could include some things that seem like they're similar however a professional should know the difference.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

I got into a conversation with the teacher who the second salesperson in the prep room had just finished with yesterday. She had been all set to sign up. I was careful not to tell her what to do, but I did suggest that she specifically ask what the fees were. I saw her today and she said she asked him. At first he just said the 1.2%, but when she asked again about what OTHER fees there are, he then told her about the additional fee each fund. Easily over 2% total. She said she and her husband have decided against it. I just hope that people (in general) don't give up on saving the money altogether when presented with such poor options in the employer plan. The automatic payroll deduction is a real benefit in that regard. :( I did mention to her that there are other options to look into (IRAs, potentially the SACT Plan through the State which I am considering myself).
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runner9
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Re: Do all mutual funds have 12b-1 fees?

Post by runner9 »

Check and see if your state has a 457 you can join. In Ohio http://www.ohio457.org is better than I can get on my own at Vanguard, whereas 403bs are far, far, worse.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

runner9 wrote:Check and see if your state has a 457 you can join. In Ohio http://www.ohio457.org is better than I can get on my own at Vanguard, whereas 403bs are far, far, worse.
There is not a state run 457 Plan that I am eligible to join. There is the Supplemental Annuity Collective Trust available. There is no fee (read: all expenses paid by the state) to invest. From what I can gather, it is invested in the equivalent of an S&P 500 index fund [*edit* It holds only 202 positions, actually. Heavy in Financial, Services, and Technology Sectors*]. I can contribute up to 10% of my salary per year, tax-deferred.

Good:
No fee!
Tax deferred savings and growth!

Questionable:
Investment choice. i.e. None. What happens when I've been investing in this for 30 years and it represents a significant portion of my personal retirement savings invested in equities, just when I should be doing the OPPOSITE and lowering my exposure to equity risk? (Okay, 30 years is a long ways away and a lot can change between now and then... but still, it's something to think about. It would be extremely difficult to maintain an efficient asset allocation. I would not be able to move the money until I retire or separate from service.)
In 2012, only 3,558 people in the ENTIRE STATE were contributing to this program. Why so few? Is it just terrible advertising? Or do people know something I don't? It makes me nervous. (http://www.state.nj.us/treasury/pension ... act-12.pdf ,http://www.nasdaq.com/quotes/institutio ... -nj-820828)
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Re: Do all mutual funds have 12b-1 fees?

Post by Toons »

He is wrong,wrong,wrong... :happy .

"Both load and no-load funds may defray their marketing and distribution expenses—including commissions paid to salespeople—through 12b-1 fees. These fees are included in fund operating expenses, which are deducted from a fund’s returns each year. You can find a fund’s 12b-1 fees by checking the fee table in a fund’s prospectus. Vanguard funds have no 12b-1 fees.

In the answer to the first question in the link.

https://personal.vanguard.com/us/help/F ... ontent.jsp
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runner9
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Re: Do all mutual funds have 12b-1 fees?

Post by runner9 »

Maybe this older thread of your would be helpful?

http://www.bogleheads.org/forum/viewtopic.php?t=112279
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Re: Do all mutual funds have 12b-1 fees?

Post by Regal 56 »

eschaef wrote:I asked if there were any other fees. He said that of course there would also be a 12b-1 fee, but that I would pay that fee anywhere, even if I took my money to any company I wanted for an IRA. [He brought this up, not me.] I questioned this and said that all mutual funds have expenses as indicated by their expense ratios, but not every fund has a 12b-1 fee. He told me I was wrong, and that every mutual fund has a 12b-1 fee as well.
The charitable answer is that he’s misinformed. I won’t be charitable. He’s a lying charlatan. It’s his job to know what he’s talking about. Perhaps he’s ignorant, but there’s a point at which ignorance becomes willful and self-serving. He’s far past that point.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

runner9 wrote:Maybe this older thread of your would be helpful?

http://www.bogleheads.org/forum/viewtopic.php?t=112279
Yes, I haven't forgotten. Tenure in t minus 3 months, and then I can feel more comfortable taking steps to see what it would take to implement change in my district.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

Regal 56 wrote:The charitable answer is that he’s misinformed. I won’t be charitable. He’s a lying charlatan. It’s his job to know what he’s talking about. Perhaps he’s ignorant, but there’s a point at which ignorance becomes willful and self-serving. He’s far past that point.
He seemed young. Quite young. Younger than me, for sure. When I challenged him back, he seemed confident, but when I didn't accept his response he seemed unsure of how to react. I was glad to have an excuse to leave the conversation.
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Re: Do all mutual funds have 12b-1 fees?

Post by ruralavalon »

eschaef wrote:
runner9 wrote:Maybe this older thread of your would be helpful?

http://www.bogleheads.org/forum/viewtopic.php?t=112279
Yes, I haven't forgotten. Tenure in t minus 3 months, and then I can feel more comfortable taking steps to see what it would take to implement change in my district.
In addition to asking about 457s, find out what other vendors are available under the 403b. There may be more vendors already available other than AXA and Valic.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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runner9
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Re: Do all mutual funds have 12b-1 fees?

Post by runner9 »

ruralavalon wrote: In addition to asking about 457s, find out what other vendors are available under the 403b. There may be more vendors already available other than AXA and Valic.
From the thread linked above, from the OP:
We have products available through VALIC, AXA, MetLife, as well as the lovely broker I mentioned earlier. All products available have layers of fees associated with them.
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Re: Do all mutual funds have 12b-1 fees?

Post by ruralavalon »

runner9 wrote:
ruralavalon wrote: In addition to asking about 457s, find out what other vendors are available under the 403b. There may be more vendors already available other than AXA and Valic.
From the thread linked above, from the OP:
We have products available through VALIC, AXA, MetLife, as well as the lovely broker I mentioned earlier. All products available have layers of fees associated with them.
I didn't notice the prior thread, and just looked at it.

It indicates that TIAA-CREF is offered (per taizara's 5/6/13 post), that would be OP's better choice for a vendor.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Raymond
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Re: Do all mutual funds have 12b-1 fees?

Post by Raymond »

If the AXA guy bothers you again, tell him he's either an idiot or a liar, and never to darken your classroom door again :P

And how does this twerp get the run of the school? In my school district, you have to check in with the front office, get your driver's license checked, then (if they decide you're OK) they print out a sticker with your name, picture and destination ("Library", "Cafeteria", etc.) for you to wear on your shirt or blouse.

I doubt "I'm here to rip teachers off" would fit on the sticker.

He's not the principal's or superintendent's favorite nephew, is he? :twisted:
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Re: Do all mutual funds have 12b-1 fees?

Post by dbr »

I am of the view that being ignorant of the fundamentals of your profession while giving advice in a professional capacity is effectively criminal and should be prosecuted with jail time.
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eschaef
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Re: Do all mutual funds have 12b-1 fees?

Post by eschaef »

ruralavalon wrote:It indicates that TIAA-CREF is offered (per taizara's 5/6/13 post), that would be OP's better choice for a vendor.
Except that I am not eligible for any plan where TIAA-CREF is a vendor. The merging of SACT with ACTS and the opening up of ACTS to employees of K-12 districts never happened. That was exactly what I was concerned about when the only information I could find was all quoted from a single internet source. This change was never mentioned as being proposed, planned, or executed by any official source.

The official information still reads as follows, "The ACTS Program is separate from, and in addition to your basic pension benefit, the Supplemental Annuity Collective Trust (SACT) Fund, and the Deferred Compensation Plan....Employees of county colleges, state universities and colleges, the Commission on Higher Education, the Department of Education, and the Office of Student Assistance are eligible to participate in the ACTS Program. Participation in ACTS is also open to those employees previously mentioned who are now receiving retirement allowances from a state pension system and who would otherwise be barred from joining another state pension system."
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Re: Do all mutual funds have 12b-1 fees?

Post by ruralavalon »

The AXA guy is wrong of course. Not all funds have 12b-1 fees, Vanguard doesn't. Vanguard funds do not have fees other than the expense ratios. He is 100% wrong on both points. Don't deal with him at all.

If he's young and inexperienced, he may actually believe what he says. But he's wrong.

With fees in the vicinity of 2%, the 403b is just not worth it. The fees eat up the tax advantage.

It looks to me like your investing plan should be:
1) max out a Vanguard IRA every year; and also
2) invest as much as you can in tax-efficient funds, such as total market type stock index funds, in a taxable account at Vanguard; and
3) try to work for some improvements in the 403b and better vendors.

Don't skip investing beyond the IRA just became they give you terrible choices at work.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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