Mutual fund supermarkets

No-load fund supermarkets

Perhaps in response to criticism like this, the old, full-service brokerages have changed their tactics in offering mutual funds. Investors have become increasingly wary of loads and the brokerage house's own funds, so traditional brokerages are beginning to offer no-load fund supermarkets modeled after Charles Schwab's OneSource.

If you like to invest in a lot of obscure funds, OneSource is the place to do it because Schwab provides funds from small and large families, and consolidated statements to cut your paperwork. OneSource also makes it easy for you to switch money from one fund family to another family.

Even though OneSource is convenient, I really can't recommend it. Although customers supposedly aren't charged anything extra for using no-transaction-fee funds, the funds must pay a fee to Schwab. So funds in OneSource generally have higher fees than you'd find at a place like Vanguard.

Also, the variety of funds available might encourage someone to trade too much or otherwise get into more funds than are necessary. Still, if you like choices, you might want to look into Schwab's OneSource, or any of the old-line, full-service brokerages which are increasingly offering fund supermarkets.

Fund wrap accounts at brokerage houses

But if you invest with a traditional brokerage, you may be steered into a wrap account. Under a wrap account a broker provides you with advice in selecting funds, including outside no-load funds. All fees and commissions are said to be "wrapped" up in one fee.

This way you don't pay sales loads, but you do pay an ongoing fee for the advice of the investment manager. This may seem fair, but wrap account fees for the investment advice are generally too high.

Many wrap advisors charge 2 to 3 percent of assets under management to tell you which funds to be in. This is too high, and you pay it on top of the fee already assessed by the underlying mutual funds.

If you like the idea of a wrap account fine, but negotiate with your broker and try to reduce the advisory fee down to a more reasonable 1 percent. And remember, if you select your own funds and deal directly with a fund provider like Vanguard, you can save money.

Some of the other no-load funds

In addition to Vanguard there are plenty of other good no-load families out there. Here's a quick look at some of the other large, established no-load fund families that are available.

T. Rowe Price was established in the 1950s and made it's reputation by investing in small growth companies. Now it is well known as a family with fairly low expenses, good stock pickers and a good reputation in small company and international stock funds.

USAA is a large financial conglomerate based in Texas that has a good reputation in the insurance field. It also offers no-load mutual funds that have conservative, stable performance with fairly low fees.

Janus Capital is a smaller no-load family that recently has had a good reputation in stock funds.