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Mutual Funds
Fund freebies - look hard
February 4, 2000: 2:32 p.m. ET

Take a serious look at the value -- and cost -- of perks offered by mutual funds
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - When it comes to investing in mutual funds, not only do you have to weigh a fund's performance, investment strategy and fees, but now you may also have to consider the fund's freebies, such as frequent flyer miles or extra money in the account for shopping online.
    That's because mutual fund companies are offering a variety of "perks" to get people in the door.
    "The funds are trying to break out from a very crowded marketplace," said Burt Greenwald, a Philadelphia-based mutual fund consultant.
    It's too early to tell if the strategies are a success for the fund companies - but industry experts strongly doubt the value for consumers of such perks, which are not always the "freebies" they seem to be.
    
Keep your eye on the real prize

    Earplugs are not usually recommended apparel for making serious investment decisions, but keep a pair handy to block out noise from a fund's bells and whistles when deciding where to put your long-term savings.
    "You really shouldn't use the free toaster to drive where you're investing your retirement money," Morningstar mutual fund editor Russ Kinnel said.
    In other words, think performance. Because without it, you might just be left with little more than a portfolio of frequent flyer miles.
    
Mind the money

    Keep in mind, too, that a bonus option, however useful, may cost you and often requires a minimum level of investment.
    "People need to be careful," said Reuben Brewer, Value Line's manager of mutual fund research. "See what you're paying for the perk."
    
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    Putnam Investments, for instance, offers a term life insurance option to its mutual fund shareholders with a minimum balance of $10,000. The policy is intended to protect your investments from a market downturn in the last years of your life. Under the policy, Putnam will pay your beneficiaries either your account value at the time of your death or its value at a pre-determined point prior to your passing, whichever is greater.
    But -- "You have to die to win that one," Greenwald said.
    Before that, you have to pay a premium in addition to regular fund fees. For a $100,000 account, you would pay $300 a year if you were between 21 and 70; or $500 if you are between 71 and 75.
    For those investors looking to put their shopping to good use, they might consider investing at SaveDaily.com, which offers you three Berger and ING funds to choose from. The site encourages fund holders to buy products from online retailers like Furniture.com and CDNow.com. In return, you receive up to 15 percent back on your purchases, which is put into your fund account.
    Not a bad deal if the fund objectives suit you and you're a savvy shopper buying what you need at a good price. But don't spend more than you can afford in the interest of saving.
    Some perks have no strings attached. Alleghany Funds is offering individuals and small businesses a free 2000 Tax Planning Guide compiled by its tax experts. The guides are meant to be educational and the only mention of Alleghany is on the cover, spokesman Michael VanDam said. He acknowledged that there is certainly a marketing function to the give-away - "It's one of the areas where we think we can set ourselves apart," he said, but added that there is no requirement to invest in the funds.
    
Making money beats feeling special

    Of course, appeals to your financial vanity may be tough to resist. You may not be a multimillionaire, but that doesn't mean you don't want to be treated like one.
    "People want services. They want to be kowtowed to, to be pampered," Brewer said.
    So, say you come across a fund company offering you free access to an investment advisor. Keep in mind, Brewer said, that any advisor that comes to you through a fund company has associations with that firm, so you have to wonder what they're going to push.
    "Independence is very important," Brewer said.
    Calvert Group, which sponsors socially responsible mutual funds, just launched a free Web-based service that helps you find a financial advisor and offers you information on that advisor's area of expertise and fee structures. Spokeswoman Elizabeth Laurinzo said the service is free to anyone and noted that the advisors are not compensated for participating in the service, adding that, "These are people we know and have worked with." However, she said, they do receive a 4.75 percent front-end load if they sell a Calvert fund to an investor.
    
Industry on a slippery slope?

    Analysts also question whether perks can - or should - deliver for the fund companies.
    The industry has enjoyed a great deal of public confidence and built its reputation on the notion that you can get better returns by investing in funds than by leaving your money in a savings deposit account, Greenwald said.
    "Other than performance, very few factors can build share-owner loyalty," he said.
    Kinnel agrees. He hasn't heard of any perk programs so far that strike him as real moneymakers. And, in the fund industry, he said, "You really should find other ways to distinguish yourself."
    The best way, of course, is to deliver strong returns at a low cost to shareholders.
    Generally speaking, Kinnel said, "An investor would do better to just shop for cheaper expenses. Then you can buy your own perks." Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.