Any reason to reinvest tax-exempt dividend into a fund with a 3.75% load?

[Big Jim24]

Mom's funds are in a Morgan Stanley account, which she has asked my sister and I to review regarding a CD maturing shortly. We've figured that out, but I've noticed some other areas of concern.

What stands out to us most concerns her largest asset at Morgan Stanley, which is in the Franklin California Tax Free Income Fund Class A1 (FKTFX). She's a California resident. In 2018, this fund generated dividends of about $19,000, all of which was reinvested by Morgan Stanley into the same fund. This fund has a 3.75% front end sales load , plus whatever fee Morgan Stanley is charging on her assets.

Is there any reason for her to reinvest a tax-exempt dividend, when doing so causes a loss of 3.75% right off the bat? Are we missing something? She's in 22% federal tax bracket for 2019.

[Wiggums]

3.75% front end load is ridiculous. Plus AUM too? Ouch!

I would not buy any more! Those fees impact her returns.

[Grt2bOutdoors]

Vanguard offers a no-load California Intermediate Tax Exempt Bond Fund with expense ratio of 0.17 for investments below $50,000. Investments exceeding $50,000 qualify for Admiral status and lower expense ratio of 0.09 basis points. The Franklin fund costs more, IMO would stop reinvestment there and redirect to lower cost fund.

[dratkinson]

The short answer. No.


The long answer.

It's time to encourage your mom to move her investments "in-kind" to Vanguard. Then convert to cheaper Vanguard funds as it is tax-efficient to do so.

Can minimize push-back by telling Vanguard to "...get it done" and let them deal with MS.

For better advice, please consider posting your mom's financial situation in the format requested in the sticky "Asking Portfolio Questions": viewtopic.php?f=1&t=6212 .

[Shallowpockets]

I don’t have any assets under AUM. The problem you have seems to warrant asking the advisor “WTF?” Really, there are no two ways about it. I am sure most AUM assets are hands off, so these sorts of questions never arise. If one does notice, then one does not voice their concerns because:
The advisor knows more than me.
Oh well, I’ll get it back eventually.
He is a nice guy.
He is a family friend.

You should start with a question, and end it with WTF? It is probably the only language that many advisors understand. They are well prepared to fend off, turn around, or obfuscate most all other questions.
What you need is not a questions, but a strong exclamation.

Then get all your statements. Look them over before the end of the year and think about moving your money. Nothing says it to an advisor quite like, “I’m taking my money elsewhere.”

[not4me]

Mom's funds are in a Morgan Stanley account, which she has asked my sister and I to review regarding a CD maturing shortly. We've figured that out, but I've noticed some other areas of concern.

What stands out to us most concerns her largest asset at Morgan Stanley, which is in the Franklin California Tax Free Income Fund Class A1 (FKTFX). She's a California resident. In 2018, this fund generated dividends of about $19,000, all of which was reinvested by Morgan Stanley into the same fund. This fund has a 3.75% front end sales load , plus whatever fee Morgan Stanley is charging on her assets.

Is there any reason for her to reinvest a tax-exempt dividend, when doing so causes a loss of 3.75% right off the bat? Are we missing something? She's in 22% federal tax bracket for 2019.

I've never owned a M Stanley fund & they may be different, however part of your concern may be unwarranted. The load is likely NOT applied to reinvested dividends. Should be easy to verify by looking at balances,etc.

Separate issue as to whether your mom needs this particular fund, to pay aum fees, etc.

[goingup]

Mom's funds are in a Morgan Stanley account, which she has asked my sister and I to review regarding a CD maturing shortly. We've figured that out, but I've noticed some other areas of concern.

What stands out to us most concerns her largest asset at Morgan Stanley, which is in the Franklin California Tax Free Income Fund Class A1 (FKTFX). She's a California resident. In 2018, this fund generated dividends of about $19,000, all of which was reinvested by Morgan Stanley into the same fund. This fund has a 3.75% front end sales load , plus whatever fee Morgan Stanley is charging on her assets.

Is there any reason for her to reinvest a tax-exempt dividend, when doing so causes a loss of 3.75% right off the bat? Are we missing something? She's in 22% federal tax bracket for 2019.

The load is likely NOT applied to reinvested dividends. Should be easy to verify by looking at balances,etc.

Separate issue as to whether your mom needs this particular fund, to pay aum fees, etc.

^Agree. A load is not usually (I have never seen it anyways) applied to reinvested dividends.

[Big Jim24]

Thank you for the replies. I’d love for her to move her investments over to Vanguard or Fidelity, but I think that would be too much for her at this point. She’s gone through a lot of changes recently, and would probably have a difficult time with leaving Morgan Stanley, who she considers having been very good to her. Just trying to get her to use a cell phone over the past two years has been a Herculean struggle. And although she would go along with whatever we recommended, it likely just wouldn’t feel right.

My hope is to be able to move things around in Morgan Stanley, but only if it will not incur excessive administrative costs and fees. Perhaps the best thing I could do is to get her plan moved to the most hands off type of plan where they charge as little as possible.

I just hate seeing how much she had paid in front end load fees, as well as their AUM fees. Ridiculous.

It has been an eye-opening experience to view the account and history online, to say the least.

[Steelersfan]

Finding a place with expenses is a good idea, but I agree with the two other posters, she's very likely not paying a load on reinvested dividends.