Invest with 0% sales commission. Sounds too good to be true? What’s the catch? So I meet up with the Senior Sales Manager from Boston Funds Direct on a murky KL Friday afternoon to find out more…

Boston Funds Direct is an online investment service that allows subscribers to invest in mutual funds via their website at the click of a button. The service applies the Amazon shopping basket concept – you browse for funds that match your criteria, drop whatever you like into your shopping basket and pay for it at the checkout. Simple, like buying a book or CD! Well, not quite…but you get the picture 🙂

Some of the key benefits that come with membership include:

V   Invest with NO sales commission charges on investments

V   Access over 3,200 Mutual Funds from over 200 leading global fund houses

V  Monitor investment performance and view live valuations in a secure account

V  Access to leading independent industry research

The company charges a membership fee of US$420 (around RM1,500) per annum for access to its online platform and independent research reports provided by Morningstar. This may be a bit on the high side for the average Malaysian investor but it all really depends on how much you’re planning to invest after you’ve signed up. But I’m jumping ahead of myself. More on this in a while. 

I’m told that so far (over the last 4 years or so) the company has focused mainly on high net worth (i.e. we’re talking about the creme de la creme of Malaysia’s wealthiest) and institutional investors in Malaysia. And now the plan is to roll out the service to other retail investors like you and me.

What are the funds available?

The company offers a veritable smorgasbord of 3,200 funds from 200 of the major fund houses worldwide. These fund houses include names like ABN Amro, Credit Suisse, Henderson, INVESCO, Morgan Stanley, Societe Generale, AXA, Fidelity, HSBC, Janus, Pioneer, Templeton, Citibank, GAM, ING, Barings, Merrill Lynch, Schroders and UBS. There are funds that invest in ’hot’ sectors like gold or oil and gas. You can also buy into emerging market funds like Russia, Latin America, etc and pick from among 4 different major currencies (USD, UK, Sterling, Swiss francs or Euros). The table below from Boston Funds Direct’s website sums up the the type of funds available:

Equity 541 63 1290 33 1927
Bond 175 14 555 19 763
Money Market 40 10 89 10 149
Balanced Fund 27 1 311 18 357

Zero sales commission

Most Malaysian mutual fund companies charge an upfront fee of between 5-7% when you invest with them. Out of this upfront fee, around 4-5% goes towards the sales agent’s commission and the rest to the mutual fund company.

For example if you invested RM20,000, up to as much as RM1,400 could be deducted for sales charges. If you invest RM100,000 the amount increases to RM7,000. That’s a lot of dough!

With Boston Funds Direct, the sales commission charged will be given back to the investor in the form of a rebate. For example if I invested in a fund from a fund house like Henderson or Templeton through them, the front end sales charges may be something like 5%. Out of this 5%, 4.25% goes to Boston Funds Direct as a sales commission. This is the amount that will be refunded back to me.

What’s the catch, I hear you say? Well, none that I can see so far. The company earns the membership fee of US$420 per annum. So whether you buy or not, this goes straight into their pocket. If they have just 100 members sign up in one month in Malaysia alone, that’s US$42,000 or a cool RM151,200! With this they pay their staff, office rental and subscription fees and what not to their JV partners. Bear in mind this is an online service which is available to investors pretty much all over the world (except the US because of tax restrictions), so that’s a huge market out there. A neat business model really!

For us the investors, we pay US$420 per annum for however long we want to be a member. However if we invest just US$10,000 (RM36,000) a year, and receive a sales commission rebate of 4.25%, that’s US$425. So this is where we “break-even”.

In other words, looking at it from the perspective of the membership fee alone, the service only makes sense if you’re planning to invest somewhere in the vicinity of US$10,000 per year

But I would definitely also consider the other benefits in deciding whether to sign up. Access to so many interesting funds from all over the world and research reports from Morningstar, the leading independent research source for mutual funds and stock investments are definitely big pluspoints.

And if you are a risk-taker, there are some funds available that can make you a packet of money, over a short time-frame! This works both ways of course, you can also stand to lose a lot of money! So beware!

To find out more about the benefits of signing up and how secure your money will be, check out this link. There are risks of course i.e. you trade in foreign currency so there is exposure there, but this is expected even if you were to buy into local RM funds that invest globally or regionally.

In terms of the mechanics, you need to open a bank account with an affiliate of the Bank of Luxembourg, who will act as the custodian of your money. This account is then linked to the online platform so that when you buy or sell the mutual funds, payments and receipts will flow out and in from this bank account.

Well, what do you all think? Would love to hear your views and/or questions. As for me, I’m trying to sort out my finances so I can explore further.

Check it out – we can compare notes later… 🙂