Hidden Load

A hidden load is an undisclosed fee or sales charge, which is often hidden in the fine print of a fund's prospectus or in an insurance contract. In some cases, investors and clients do not realize they are paying the hidden load, as explicit attention is never drawn to the issue.

A hidden load is a cost that a customer is typically never told about. For example, most investors are unaware of the 12b-1 fee that mutual funds often charge. With this hidden load, the investor will pay an small, annual charge to cover the fund's promotional and advertising expenses.

Calling these costs hidden may not be entirely fair. The prospectus for a mutual fund and insurance contracts do generally disclose them, but too few investors bother to look. Types of fees in mutual funds include ongoing annual fees to keep you invested in the fund, and transaction fees paid when you buy or sell shares in a fund (also known as loads). These fees are often summarized in the expense ratio, which shows the percentage of the fund's assets - in essence your money - that goes toward them annually.

The management fee is among the biggest costs for a fund and is usually between 0.5% and 2% of assets on average. These can add up over the years. If you keep your money in a fund with 1% a year in management fees, over 20 years you've given up not only 20% of the money invested, but 20% of the gains as well. Don't forget the 12b-1, which funds are allowed to change for advertising expenses, up to 0.25%.

Account fees are maintenance fees usually charged on small shareholders of a fund that fall below some minimum balance, usually a pre-set dollar amount. Then there's other expenses, which may include shareholder service expenses that are not included in the 12b-1 fees, custodial expenses, record keeping, legal expenses, accounting expenses, transfer agent expense and other administrative expenses.

There's also front-end loads, taken as a percentage of the money you invest right away, and back-end loads, taken as a percentage when you remove money from the fund.

For life insurance policies, there's a host of fees and expenses as well: premium loads/sales charges; administration fees; mortality and expense risk charges; surrender charges; a monthly per thousand charge; and fund management fees that go to the people who manage the investments tied to the policy.