The recent Morningstar story, that American Century is planning to shake up its funds and increase their load fund lineup from 26 to 39, has been bugging me all weekend.

I simply don’t get it. Well known funds like TWEIX, BEQGX and TWCUX, among others, are set to transition from the no load share classes to the load lineup.

The reason given was that they would be primarily targeted towards fee-based advisors and retirement plans. Well, there is silent revolution going on among many advisors trying to find a way to go from commission based to fee-only.

Why?

Primarily, to escape the stigma that commission based advisors are only looking out for themselves and not for their clients. That would mean the use of no load products and ETFs. Of course, this transition may take years and, in the meantime, load funds will continue being sold to those investors who don’t know any better.

Back to American Century. Could it be that their funds lack performance and the company is looking for another way to market them? Maybe, but a quick check of my StatSheet, which features the American Fund family as well, shows that the performance of their funds, at least for the current Buy cycle, is in line with others.

If you have any thoughts as to why in today’s investment climate, with low cost ETFs taking the lunch bags from some mutual funds, a fund company would go the load route, please share them with me.

A couple of weeks ago, I was looking at utility ETFs to diversify some of my clients’ money into this well performing sector.

In my weekly StatSheet, I have been tracking four of them on a regular basis. If you look at the table below, you’ll notice that all have very similar momentum figures in the categories of 4Wk, 8Wk, 12Wk and YTD:

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Sideways to downward bias had the markets in a retreating mode. Our Trend Tracking Index (TTI) for domestic funds moved lower but still sits +3.75% above its long-term trend line (red) as the chart below shows:

The international index eased up as well and currently sits +7.89% above its own trend line, as you can see below:

In my advisor practice, a client brought up the question as to whether he could save some money by referring a relative or friend and have that person’s assets to be considered when management fees are calculated.

Here’s how it works. All fee-based investment advisors have a sliding fee schedule for their clients. The higher your portfolio value, the smaller the management fee.

For example, let’s say your managed portfolio has a value of $80k and you are referring a family member with a portfolio value of $40k. In my practice, we have fee break points for accounts under $50k, under $100k, under $250k and so on.

In the above example, you, with the $80k portfolio, would benefit greatly by referring your friend with a $40k portfolio. You would both slide into the lower fee bracket between $100k and $250k, which would result in considerable savings.

It’s a win-win situation. Your cost has been reduced, your friend starts out at a much lower fee schedule and the advisor has gained a new client.

If you’re working with a fee-only advisor (and you should), be sure to ask the question about combining assets to reduce your investment management costs.

While on the subject of annuities this week, here’s another doozey I come across every so often: The IRA Annuity.

As you know, an IRA is a tax-deferred investment vehicle and so is an Annuity. In my advisor practice I find that, occasionally, a new client comes aboard and his portfolio contains one of those rarities.

If you ask your accountant or tax preparer, he will tell you that an IRA Annuity absolutely makes no sense (unless, he happens to be selling these) from a tax stand point.

If that’s the case, how do investors end up with them?

I got the answer many years ago when my wife (an accountant) was conducting an IRS audit for a client.

I was able to sit in for a portion of the audit dealing with investments, and I asked the auditor about IRA Annuities. He laughed and said that they were simply another tool for someone to generate an up front commission. Other than that, they made no sense at all.

So, if you’re being approached about moving your IRA into an Annuity, be warned that this may improve someone else’s financial condition, and not yours.

If you had such an experience, please share it with me.

Ok, I admit it—I am biased when it comes to annuities. My generally negative view is not based on my own experiences but those of clients and a good portion of my newsletter readers (even though their preferred investments are no load mutual funds and ETFs).

The stories I hear are very similar in that most people I have talked to complain about them in regards to performance, fees and ridiculous surrender charges.

My first question usually is: “Did you go out and buy this annuity or did someone sell it to you?” The moment of silence on the other end of the phone is a dead giveaway that the former didn’t happen but the latter did.

While annuities certainly have a place, most investors are not well informed, or are even being even misinformed, about the pros and cons of such a commitment. For example, one of my retired clients, who is traveling across the U.S. by motor home, called to tell me that at his last overnight rest stop, annuity salesmen were putting on a seminar for seniors and that many signed up. He did too, but changed his mind after discussing the presented information with me.

While this may be offending to those working in that industry, it’s worth noting that high up front commission can very easily compromise the integrity of a salesperson. My suggestion is that if you think an annuity is something for you, do your own research and buy one that has no surrender charges.

While some of my clients have an annuity with my custodian (Schwab), I have also heard good things about “Ameritas Direct.” I have no relationship with them, but you can find out more info at their site at:

http://www.ameritasdirect.com/

However, if you’re stuck with a bad annuity, what can you do? While this is not my specialty, here’s an article by Kiplinger on “How to Unload a Bad Annuity:”

http://www.kiplinger.com/retirementreport/features/archives/2007/01/Cover_Jan2007_03_01.html

If you’ve had a good (or bad) experience with an annuity of any kind, feel free to comment. You can even do so anonymously, if you want to maintain your privacy.