Mutual Funds: The Case of Merrill Lynch
In recent years, Merrill has made sweeping changes that are resulting in stronger fund sales and reduced costs for fund shareholders. After the financial crisis ends, Merrill and other brokers should continue leading the move toward lower fund expense ratios.
For years, Merrill Lynch managed and sold its own proprietary funds. In 1986, the Merrill Lynch funds ranked as the largest fund family, well ahead of No. 2 Fidelity Investments. At the time, the list of top fund groups was dominated by now-defunct brokerage names, including Paine Webber, E.F. Hutton and Dean Witter. To market funds, brokers sold aggressively, promoting shares that came with upfront commissions -- or loads -- of up to 8.5%.
By the 1990s, the broker-sold funds faced stronger challenges from no-load fund companies, such as Vanguard and T. Rowe Price, which impose no sales charges. Many of the no-load funds outperformed the proprietary brokerage offerings.Profiting From Flexibility and Change As investors became more savvy about costs and performance, the brokerage funds faced slowing sales. But Merrill Lynch brokers adjusted, shifting from load investments to funds sold without upfront sales commissions. This change produced huge savings for investors. To appreciate how wide the cost cuts have been, consider that each time the load customer makes a purchase, he may have to pay a sales charge. The upfront sales loads are taken off the top. Say an investor wants to deposit $10,000 into a fund and pays a sales load of 5%. The broker pockets the $500 sales load immediately. The remaining $9,500 is invested in the fund and begins producing earnings for the shareholder.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV