Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



B Is for Broker

Here we go again.

Yesterday afternoon, I received a press release from the National Association of Securities Dealers (NASD) announcing that the organization, which is best known as the governing body for the NASDAQ National Market, has censured and fined American Express Financial Advisors, Chase Investment Services, and Citigroup Global Markets for improperly pushing mutual funds.

At issue is how the brokerages, which, respectively, are units of American Express (NYSE: AXP  ) , JPMorganChase (NYSE: JPM  ) , and Citigroup (NYSE: C  ) , recommended and sold Class B and C shares of mutual funds without disclosing that Class A shares might have been more economically advantageous. Indeed, Class B or lower shares are typically an awful deal for investors. Class B shares, in particular, usually carry contingent deferred sales charges for up to six years. Can you imagine wanting to exit a fund after a five-year losing streak only to be told that you'll have to pay a hefty sum for the privilege of doing so? Yeah, me either.

But think about how your broker makes out on a deal like that. They'll earn a portion of the proceeds from your expense ratio annually, and then rake in a tidy sum when you've finally had enough. No wonder Motley Fool Champion Funds chief analyst Shannon Zimmerman suggested the title for this story when I forwarded the press release to him. Pushing Class B and C shares is nothing less than a money grab by greedy brokers.

Fortunately, the NASD knows this. In the statement, Vice Chairman Mary Schapiro said that brokers must consider the cost to the client when recommending funds that offer different share classes. American Express, Chase, and Citi apparently didn't do that, and they've been fined more than $21 million for their misbehavior.

Yet that's peanuts to these guys, so you can expect the practice to continue. And that means you, dear Fool, must remain on the front lines when it comes to defending your mutual fund portfolio. Don't get suckered. Stick with Class A shares or, even better, funds that offer only one class of shares in a low-cost, high-performance package. Those are the champion funds.

For related Foolishness:

You can beat the market with funds, and it won't cost you a fortune to do so. Let us help. Take a risk-free, 30-day trial toMotley Fool Champion Fundstoday.

Fool contributor Tim Beyers prefers stocks but he's also an awfully happy owner of the Julius Baer International Equity Fund and has been for two years now. What funds are you investing in? Share your thoughts with other Fools at the Mutual Funds discussion board. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 491186, ~/Articles/ArticleHandler.aspx, 10/22/2016 7:56:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AXP $67.36 Up +0.58 +0.87%
American Express CAPS Rating: ****
C $49.57 Down -0.01 -0.02%
Citigroup CAPS Rating: ***
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****