Switch into exchange traded funds (ETF’s) and individual stocks. Put the difference in fees in your pocket, not your advisor’s.
You must follow a strategy to minimize any remaining deferred sales charges or loads before you sell your mutual funds.
Stop immediately all ongoing contributions into mutual funds with deferred sales charges. Every time you make a new contribution it takes about seven years before the investment will be free of any sales charges upon redemption.
Every year you are entitled to redeem your fee free units without incurring any sales charges. Normally this works out to 10% of your initial investment, but varies by company. You can request this information simply by calling the head office of the mutual fund company to request the number of fee free units. Make sure you ask them for the final date of expiry of the sales charges and the total cost of the sales charges remaining. Every year you will need to call the head office of these fund companies to obtain the above information and to find out the number of fee free units.
Once you have determined the cost of liquidation, you can decide the best course of action. You need to keep in mind that the annual cost savings by switching into ETF’s and stocks will be substantial. You can compare the annual cost savings with the sales charges remaining to determine how long it will take you to break even.
Stop all your monthly contributions into load funds immediately.
Never request the liquidation of your mutual funds without obtaining all the remaining sales charge information in advance. Mutual fund companies can charge up to 5.5% of the market value and you never want to be faced with this charge. Only when you are equipped with the relevant details can you make a proper decision to liquidate your funds or not.
Liquidate all your fee free units every year.
Once you have done the above points, you will need to once again ask the head office of the fund company the dollar value amount of sales charges remaining and the expiry date of the funds you hold.
Make a comparison of your estimated ongoing annual management fees by investing in individual stocks and exchange traded funds to your annual costs of the mutual funds you own.
Determine the number of years for you to break even as follows:
If the annual difference in fees works out to 1.5% and you have $300,000 invested, this works out to an annual savings of $4,500. If the remaining deferred sales charges works out to be $4,000, it will take you 0.89 of a year to break even.
Determine a break even compromise that makes sense to you. After making all these calculations, you may decide to only liquidate the 10% fee free units annually, but it is essential having all your facts before doing anything.