Insider Information on Fees – What Brokers Won’t Tell You!
Description: This is where it’s so important to know how fees are built-in to your plan and how to avoid them. Let’s examine the different types of fees.
1. Broker-sold plans vs. Direct plans: Simply stated, if you buy a plan through a broker for their “advice”, you pay an upfront fee which comes out of your investment returns. Furthermore, a broker will choose the investment options which pay ongoing fees so that they are always collecting money from you. AVOID BROKER SOLD PLANS! I’m telling you everything you need to know about a college savings plan so paying a broker is ridiculous, especially because their incentive is to make money off of you, regardless if you make or lose money.
2. Fund-of-fund fees: We’ve talked through this already so again, AVOID the Age-based and Risk-based portfolios.
3. Mutual fund fees by class: Each plan will have separate “classes” of mutual funds sometimes listed as “Class A”, “Class B”, etc. In the Virginia plan, for example, brokers will invest you in “Class C” shares because those pay the broker a 1% commission based on how much you’ve invested. That 1% commission you start in the hole -1% on your returns! Pay careful attention to the fees by class and select the ones with the lowest fee. Just that simple.
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