Master limited partnerships are a popular way for investors to earn income. But a recent Bloomberg report suggests that many MLPs pay high management fees that reduce your investment income.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks more closely at the issue of MLPs and management fees. Dan notes that MLPs are popular because of the income that they pay to investors, with tax provisions that require extensive distributions of income and cash flow. But Dan also points out that many MLPs have relationships with outside management companies, such as Kinder Morgan Energy Partners (NYSE: KMP) and its management company, Kinder Morgan (NYSE:KMI). Dan emphasizes how important it is to understand the relationship between the MLP and its management company to ensure no conflicts of interest, suggesting MLPs like Enterprise Products Partners (NYSE:EPD) that took their management in-house could make things simpler to evaluate. Dan concludes that your income relies on paying as little in fees as possible, making it important for you to know where your money is going.