NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. No rational person would make investment decisions based on a blog post. Please consult with your financial advisor before taking any action.
A load fund charges you a fee or commission. This fee can 3%, 5% or as high as 8.5%. A no-load fund does not charge this fee. If you invest $10,000 in a no-load fund it is worth $10,000 the day you bought it. With a load fund you actually invest less. If you buy a fund with a 6% load you may start with $10,000 but 6% or $600 is taken as a fee/load/commission. You actually invest $9,400. Usually, the $600 goes to the broker or advisor that sold you the fund.
There is nothing wrong for getting paid a commission for selling something, people do it all of the time. The problem is not with the sales person but with the system. There is a temptation for the sales person to sell a product with a 8% load instead of a 5% load. Would you rather make $500 or $800. What would you do?
One thing skeptics know is that humans can be very good at justifying their choices. The mind of a sales person can do amazing things to fix the cognitive dissonance that may exist. Did they sell a product that was good for you or good for them? Odds are that the product with the higher load may not be as good – but how will you know?
This is why you should find an advisor that is paid buy you. An advisor that is “Fee-Only”. “Fee-Only” means that the only money they get is the fee that you pay them. People work for the person that pays them.