Rather than pick mutual funds yourself, you may prefer to rely upon a broker or financial planner for advice in selecting funds. If so, you may wind up owning a load fund and paying an initial sales commission. The standard commission rate has been 8.5 percent but those rates have come down. If you invest $10,000 and pay a 5 percent commission, for example, your account will initially show that you own $9,500 worth of mutual fund shares.
In this example, then, you’re paying an advisor $500. What are you paying for? Help in choosing among all the funds available. Your advisor is doing the research so you won’t have to.
What’s more, you probably won’t want to invest in just one mutual fund. A good advisor can help you select several funds that will complement each other and minimize overlap. If that’s the case, you won’t have to worry about putting together a portfolio that includes a large-cap growth fund, a small-cap value fund, etc. In addition, an advisor may recommend that you buy funds in asset classes that you otherwise wouldn’t have selected. Such diversification can help you reduce your risk, which is part of the value you’ll receive when you work with an advisor.
