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Are the Franklin Templeton family of funds a good investment even with the 5% front end loads they charge.

Apr 27, 2013 by Dale from Akron, OH in  |  Flag
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We believe that any kind of investment with a 5% upfront sales commission is not appropriate in today's day and age where ETFs are easily available for less than 0.25% annual cost. Off course, it depends on the exposure the Fund is trying to deliver and at what cost. Also, given that less than 50% of actively managed mutual funds cannot beat their benchmarks on a consistent basis over the longer term, it behooves an investor not to consider investing a certain potion of their portfolio using low cost ETFs. We believe that a core-satellite approach to investing which combines the best of the active and passive styles of investing at a low overall cost is the most optimal approach.

Comment   |  Flag   |  Apr 30, 2013 from Appleton, WI

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Rich Winer Level 20

Like most fund families, Franklin has good funds... and no so good funds. If you're paying a 5% front end load, I would assume that you would be purchasing the funds through a financial advisor. I think the most important question is do you trust the advisor with whom you are working? If the answer is YES, then trust his or her recommendations. If your skeptical, you might consider a fee-based advisor who may have more investment options to choose from. For example, as a fee-based advisor, I have access to the Franklin Templeton funds without the load and well as load-waived and no-load funds from other fund families. My clients pay no commissions, only my management fee. The difference is that my clients pay me a fee to manage their investment portfolio. While commissioned brokers also manage portfolios, when you a pay a 5% front end load (5 times my 1% annual fee), it feels like they are being compensated for selling you a fund. You are essentially paying them five years worth of my fees before you even see how the fund performs for you. While this may not be the simple answer you were looking for, I hope I was able to highlight some of the things I think you should consider before you pay a 5% up-front commission for any investment.

View all 4 Comments   |  Flag   |  Apr 27, 2013 from Woodland Hills, CA
Rich Winer

If the fees pay for sound advice tailored to your individual needs and objectives, than it may be worth 5% upfront, 1% per year or whatever the cost. Personally, I'm not a fan of paying 5% upfront for anything. Yet, the value of good advice is not measured solely by outperforming the S&P 500 or some other arbitrary benchmark. More importantly, good advice might keep you from buying aggressively at market tops, selling out in a panic near market bottoms or bailing out of an excellent mutual fund during a short-term period of underperformance. If you would like a second opinion on where you have your money invested (or options you are considering), I would be happy to review your portfolio and give you an objective opinion. Feel free to contact me.

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Flag |  Apr 28, 2013 near Woodland Hills, CA
Rich Winer

Here's a rebuttal to "The Retirement Gamble" on Frontline. It echoes some of what my colleagues and I have advised, that "Planning isn't just about fees--it's about service" and quality of advice. Here's a link to the article: http://www.asppanews.org/2013/04/24/frontlines-view-of-retirement-industry-as-commodity-is-dead-wrong/

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Flag |  Apr 29, 2013 near Woodland Hills, CA

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Hi Dale! I would say it depends on your definition of "good". Does that mean it provides a return sufficient for your needs? Or a return that beats the market? Or a return that beats other similar funds? Also, good could mean it is a socially responsible fund. And how good does it have to be to justify a 5% load up front? Does that make it better than a no-load fund?

Sorry for all the questions, but I would say check with a fee-based financial advisor who is acting as a fiduciary for you. Talk with him/her about your purpose for holding the fund. If you ask a salesperson, you may get a different answer.

2 Comments   |  Flag   |  Apr 28, 2013 from River Hills, SC
Dale

Well said Pam. I guess my definition of "good" is return on my investment with some security. I don't like to gamble with my money (that's assuming the stock market is a safe gamble) as I'm nearing retirement age, and I also want to see my investments grow. If paying a 5% front load is ultimately going to erode my finances I need to know now as I pay that 5% load each month.

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Flag |  Apr 28, 2013 near Akron, OH
Pam Horack, CFP®

Dale, I am a fan of no-lead funds for just that reason. There are plenty of "good" funds available that do not charge an up-front load. In your comments, I am hearing two different things - you want security and growth and growth as you head into retirement. No one fund can offer both, and the stock market is never safe - it's always a gamble. But you can take calculated risks with your investments to put you in a comfortable position for the future. Find a planner that you can discuss your entire situation with. We only see a small slice of your retirement in this forum, so you will want to work with someone who can evaluate your entire situation and look at other variables such as cash flows, social security, insurance, estate planning, etc. to be sure all the pieces are in place for you. Feel free to give me a call if I can help.

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Flag |  Apr 29, 2013 near River Hills, SC

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There is very little reason today to pay a front load for a mutual fund. If you want to research the fund I would suggest going to Morningstar (http://www.morningstar.com/). Use that as starting point for your research on determining the quality of the fund. I echo what many of the others have said about finding a lower cost fund or ETF option.

Comment   |  Flag   |  May 01, 2013 from Leawood, KS

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Rich's answer is on target. Just to add a possible clarifying point, there is no evidence or reason why funds which charge a 5% front end load will perform any better or worse that funds that do not charge a front end load or sales charge. It's strictly a matter of whether and how you are compensating the broker for selling the fund to you.

1 Comment   |  Flag   |  Apr 28, 2013 from Morristown, NJ
Rich Winer

Correct; and as I mentioned, Dale could purchase any of the Franklin funds (or many other "load" funds) at their NAV (net asset value), without the 5% load, from a fee-based advisor.

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Flag |  Apr 28, 2013 near Woodland Hills, CA

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1 vote

Dale,

I concur with everything stated above. Any mutual fund is just a tool you use to meet your goals. There are no good, no bad, just some that will serve your needs better than others. Some front loaded funds may actually outperform certain no loads over time. However, in most cases I prefer the fee based approach better than the commission based approach, as it provides transparency, and puts me and my client on the same side of the table. Thus, I'd recommend a consultation with a qualified specialist. While sometimes I think I can self diagnose a medical issue from time to time, I still run it by my doctor for an educated opinion. More than once, my diagnosis was faulty...

Best Regards, Rod

Comment   |  Flag   |  Apr 29, 2013 from Springfield, MO

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Jason Hull Level 20

No, absolutely positively, definitively not. Loaded mutual funds underperform their no commission counterparts in ALL NINE of the Morningstar mutual fund categories. Someone who recommends a loaded mutual fund to you is simply asking you to take money out of your pocket and put it into theirs. This is about as bright line as you can get, and the article I'm linking cites the research to back up what I'm telling you: http://www.hullfinancialplanning.com/please-stop-paying-commissions-for-loaded-mutual-funds/

Comment   |  Flag   |  Jun 27, 2013 from Fort Worth, TX

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Rich’s answer is right on point. I am primarily fee-based, but I do find occasion to recommend a front end loaded fund, and for the right reasons, I’ll recommend FT. Franklin Templeton is known for their quality value funds, but they also have a large family of very specific funds; ie; if you want to invest in gold, or China, there’s a fund for it

Comment   |  Flag   |  May 06, 2013 from Delray Beach, FL

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Real simple, as some have alluded to, the 5% front load pays your advisor. There are several ways to pay an advisor. Other than the sales load (commission), the most common is to pay a fee based advisor a fee (often about 1%) to manage your accounts for you. Over the course of 5 years, simple math says that you pay the fee based advisor just as much as you paid in the up front fee. And you will keep paying him after that as well.

So it isn't a matter really of how MUCH you pay your advisor, it is on what terms. If you invest in FT with a sales load, then later decide that you need to liquidate that fund, guess what? You never get that money back. Furthermore, once your advisor is paid up front, what incentive does he have to keep servicing your financial needs? In what other industry would you pay a contractor for 5 years of service up front - and HOPE that he will provide the service!

I believe pay as you go makes much more sense. If your fee based advisor isn't serving your needs, you can always terminate your relationship, usually with little or no penalty.

If you prefer to stick with your commission based advisor, you may be able to request "C shares" which pay a sales load of 1% per year, rather than 5% up front. If you later decide to sell, you don't give up the 5%. This commission model is closer to the fee based advice model, as the advisor receives payment only so long as you retain that particular investment.

Comment   |  Flag   |  Jun 28, 2013 from Bridgewater, NJ

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