Simply put, “branded” mutual funds are almost always a bad idea. Why? They almost always replicate a fund available from another source by adding on layers of expense.
In many cases, the bank/insurance company will hire a manager like Putnam, Barclas or Wellington to manage the “branded” mutual fund. Although this might seem like a good idea, they buyer ends up with paying more for the same product.
1. The money manager charges the fund a management fee;
2. The fund sponsor charges the fund various administrative fees;
3. The fund sponsor ensures there are marketing fees built into the fee structure; and
4. The fund sponsor almost always offers the fund with a significant load.
While expenses in funds can never be completely avoided (nor should they be), you can almost always avoid extra fees imposed by “branded” funds.
1. Look at the money manager on the prospectus. In many cases, the “same” fund is available directly from the money manager with a lower fee structure.
2. If you can get the same fund without paying a load, you just made a 5% return the first day of your investment. The Fund industry has many distribution streams. Pick the one with the lowest cost to you.