MUTUAL FUNDS Some interesting things you should know before buying

I know what you’re thinking, red flags and warning bells going off all over the place. The reality of it is this. While a broker putting a damper on his clients desire to read the prospectus first can be suspicious, it is not necessarily a red flag, and here is why.

Nobody reads a prospectus; you know it, I know it, and he knows it, so what makes you so sure you will break with ranks and read one? Imagine this; your broker calls with the latest John Grisham book he just read and he is very excited for you to read it as well. Maybe you are interested, maybe not; but imagine his disappointment when you tell him; first you will need to read the entire encyclopedia Britannica in full, twice, before reading Grisham’s latest courtroom thriller.

You may clearly thinking, I like this book idea, but too him, he has just lost the sale, and statistics tell him that you will never read the enormous book set and never call him about the Grisham novel.

Until recent years prospectus were written with the industry professional in mind and were full of industry jargon, so much so that only a broker would understand half of what he or she was reading; believe me, I know. Not only was the information enormously boring, technical jargon, it was such a dry read it was impossible to retain ones enthusiasm. I have read a number of partial prospectus, but never being able to stick it out for the long haul.

Reading a prospectus today is a far easier proposition, and you are much likelier too not only finish one, but to understand what you just read as well. Companies are required by law to gear their prospectus to non industry professionals.

I can recall the days when I would pitch a certain mutual fund only to have the wind taken out of my sales when my client wants me to mail a prospectus. That’s right, I said mail. Not only do they want to read the thing, they want me to lick a stamp and get it too them in the slowest possible manor. As I am sitting there on the phone I am counting the commission dollars that have just slipped through my fingers. For someone to tell me he wants to read the prospectus, that is equivalent to saying no, and please don’t call me again.

So back to your broker who has just glumly hung up the phone with you. Yes, he could be trying to hide some details from you, but maybe not. He may have told you this is a conservative income and growth fund, but the prospectus he does not want you to read states its investment objective is aggressive growth.

Or he is a straightforward, honest guy who knows you will not read the prospectus, and by the time he gets you on the phone again you will have forgotten about the fund entirely, and spent the earmarked money elsewhere.

So don’t cry foul play the next time your broker is less than enthusiastic about you reading the prospectus first, and if you do ask to read it, well, that’s not such a bad idea too.

So…happy boring reading and happy investing.