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Expert: Michael A. Weiss, CFA — 12/27/2007

Question

Mr Weiss,

The financial advisor at Merrill Lynch has suggested the Mutual Fund Advisor Selects with PA&R program for me. He originally recommended Class C mutual funds but I was not enthusiastic about this. I felt that an annual fee based on the portfolio that he was managing would be in my best interest. What can you tell me about this MFA/PA&R program. Thanks

Answer

Hi Mr. Archibald,

Thank you for the question. Please understand that I cannot provide you with personalized investment advice in this type of forum. With that said, I will certainly try to help you.

I should mention that I actually worked as an investment analyst on Merrill Lynch’s Mutual Fund Advisor and Selects Programs from 1997 to 1999.

First let me say that you are absolutely right to reject the idea of owning C shares. In general C shares are far too expensive and you are also right in that a portfolio with a fee based on assets is usually a better idea.

As far as MFA Selects with PA&R is concerned, this product sounds very similar to what we use to call the discretionary MFA program. Discretionary MFA went beyond individual fund recommendations by providing portfolio management services. Discretionary generally means that another party is making the investment decisions for you. The way is use to work is as follows: Mutual Fund Advisor had model portfolios assembled by the analysts and portfolio manager and then clients would be assigned a model based on needs, objectives, etc. The financial advisor helped in assigning clients to models by having the client fill out a questionnaire.

(Discretionary MFA was actually the original program that only included Merrill Lynch mutual funds. Selects and the ability to use funds from other families were rolled out later)

I am not sure about the specific portfolio management services with MFA Selects with PA&R, but the services could include discretionary portfolio management and rebalancing with an annual fee based on assets structure. You would have to check with your financial advisor at Merrill to find out about the specific services that Merrill is currently offering.

As with any mutual fund wrap program, it is very important to consider the fees. You may be paying for the underlying fund fees as well as the mutual fund wrap fee. When I worked for Merrill, the wrap fee for discretionary services was as high as 2.5% plus underlying fund fees. The total for the typical client may have been close to 4%, which is high but in the late 1990s people cared less about fees because market returns were so high.

Here is a link from a Merrill Lynch that also may help you:

I hope this helps.

Michael A. Weiss, CFA

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