My mom is going to invest 800,000k in mutual funds. Are these fees too high?

My father just passed away and my mother doesn't work so I am trying to find her a stream of income to live off. First off I am going to look around for the best deal and I don't know a lot about mutual funds so I am starting to do research. Her life insurance salesman is trying to get her into principle life mutual funds that cost 2% from the start plus about 1% a year no matter what happens to your account (up or down). Is this a rip off? What would be standard fees for an account like this?
Additional Details
she is 55.

This is not cheap and not outrageous, somewhere in the middle.

There has been some good advice already mentioned, but I think what you need to consider is do you want to pay someone to give you advice and manage your account, or do you want to try and do it yourself?

There are risk to either choice. If you do it yourself and don't know what you are doing it will be very easy to lose a lot of money. If you pay someone to advise you it will eat into your return and you will leave some money on the table.

If you decided to do it yourself you should try and learn as much as you can before you start. If you are going to pay an adviser, make sure you get someone you can trust, because there are plenty that will screw your over, ask for a referral from someone you trust or interview several and pick the one who you feel is honest not the one who is the best salesperson.

If you or her do not know much about mutual funds then I recommend holding off. Go to the book store. Buy the book "Mutual Funds for Dummies". I am not kidding. It is actually a pretty good starting tuturial.

Also, do not get mutual funds from a life insurance salesman. He is probably selling her annuities and there are certain tricks and traps to annuities that make them bad choices for some people. However, the people selling them will gladly sell them to anyone. Once again, do some learning before you move forward.

It's not a rip-off for the way you're going about it. Your insurance salesman is being paid a "load" of 2% as a sales commission for helping you select and buy one. You can avoid those fees by buying a no-load fund if you feel comfortable doing that. Start with the Vanguard Group funds. They have far lower management fees than other funds. Lower management fees=higher return to the investor.

No your Mom is not being "ripped off" this is normal.
However I'm not fond of insurance agent selling mutual fund products.

Mutual Fund companies as well as ETFs have an entire array of products many will fit your needs and in the long run out perform bank products.
You can go to the MSN.Money website http://moneycentral.msn.com/home.asp it has an entire section on mutual funds and Exchange Traded Funds. Read about the various products and in doing so you will be getting investment ideas and at the same time educating yourself about investing.

You should also contact the funds companies for more information. I have found that Vanguard & Fidelity can meet your needs for mutual funds. The service and information they provide is all free and you will find it helpful.

Just make this and any investment you do with peace of mind so that you will know what you're doing is best.

There are many other mutual fund options that are much less expensive and probably much better. With that much to invested, it would be wise to not invest it all in one place or with one party. Too much risk to do so.

First of all decide the amount of income she will require then begin looking for a selection of mutual funds that provide that amount of income but also protection against inflation.

Maybe Fidelity Balanced would be one to consider. Yield of 2% and annual appreciation record of about 8% and expense ratio of 0.6%.

There are closed end funds that one purchases like stocks that pay monthly distributions. One needs to be just a tad careful with these, but they can provide a steady income if one is careful and does not place too large a bet on any one particular fund.

Here are a few examples.

HPI and HPF pay about 9% and are closed end funds that invest in preferred stocks with expense ratios of about 1%. Their dividends are paid monthly so their would be a regular income flow. Since it is fixed income there would not be any inflation portection.

UTF pays better than 9% and invests in utility stocks so some inflation protection should be expected. It also pays a dividend monthly.

GIM pays about 5.5% and invests in foreign government bonds. It also pays a dividend montly. The dividend is less but there is protection against the falling value of the $. The 10 year annual return is 11.8%, better than most equity mutual funds.

Sounds like a variable annuity to me. Some of these are very good, and I've seen some that are absolute garbage!

There is not enough information given here for anyone to make any kind of recommendation. However, I would mention that it is very important to realize that when putting together multiple streams of income, there needs to be ample time spent on planning when and how these funds are going to be taken out.

Basically, it's not what you make, but what you keep after taxes that really counts.

It sounds like your looking for a "deal". Vanguard has the cheapest funds on the planet, like 10 basis points, (a tenth of one percent!) But don't count on any sound advice. You get what you pay for, just like everything else.

Hope this is helpful.

How old is your mother?

You are very wise to be conscious of the fees from broker's.
First, there are 2 types of mutual funds -- no load funds and load funds. No load funds do not charge sales commissions to buy the fund. They do charge an annual management fee, which can range from less than 0.50% to over 2%. There are many mutual fund companies with great long-term records with low annual fees. Vanguard is the best known and among the lowest cost fund, if not the lowest.
Load funds, on the other hand, charge a sales commission to purchase the funds. They usually have at least 3 classes of shares (A, B or C) with varying degrees of sales charges. The A class usually charges 5.75% (that's right) on the initial purchase. Then there are share classes that have a deferred sales charge (usually decreasing as your holding time in the fund increases). Both of these types also have annual management fees, but they are usually lower than the final share class which may have no upfront commission, but higher annual costs. There are some very good load funds, but studies have shown that the increased costs of load funds does not benefit performance.
The load funds charge the load in order to compensate the brokers who market and sell these mutual funds, so it's not like the sales commission goes toward more research. No wonder most brokers recommend load funds. Their livelihood is dependent on their commissions.
There are also new types of funds called ETFs, which are mutual funds whose share prices are traded throughout the day (unlike regular mutual funds who only price their shares at the end of each day). Many ETFs have much lower annual fees, (usually less than 1%), but you have to buy them through a broker. But you could establish a discount brokerage account at Etrade, Fidelity Schwab or one of the other discount brokers and pay no more than $20 tops to purchase your investment. Vanguard also sponsors ETFs.
You should not rush into investing the whole inheritance at one time. The market is unstable at this time, so I would recommend slowly investing the money over a period as long as one year. You can invest any uninvested amounts in money markets and even some shorter term bank CDs (don't go out longer than 1 year in maturity) and watch those FDIC limits -- don't put over $100k in any one bank unless there are joint account holders (even if the rates are higher at one bank over another). If there is a big drop in the market, then you could consider adding to your investment, but don't worry about missing out on an opportunity. We could still be in a bear market with further decreases to come. Even the pros don't know how long this downturn will last. They sometimes like to scare people into investing by saying that people will miss out on a turn up in the stock market if they are not fully invested, but many professionals get paid based on the size of the assets under management no matter how it performs, so of course they want your money invested.
My advice to you is to get some magazines like Forbes, Smartmoney and Money and read their features on mutual funds. Also, most mutual funds are rated by Morningstar ( four or five stars are the best). You can look up the symbol for a particular mutual fund in Yahoo Finance and the Morningstar ratings will be shown. Don't worry so much about the most recent performance of any one fund as most will be down this last year. Look at the 3 year and 5 year returns compared to the funds competitors. Forbes does a good job of rating the funds in bull and bear markets.
In addition, you don't say how old your mother is or what her tax bracket is. If she is in her 60's, she may also need some growth to go along with her income needs, so you should not just limit your funds to income funds. You should consider some equity exposure, as equities will usually outperform fixed income.
There are also many sectors of fixed income, including governments and municipals (which are tax-free and are selling at good yields comparable to taxable Treasuries right now), corporate investment grade bonds, high-yield or junk bonds (more risky), mortgage bonds like GNMA and international bonds (both developed world (like Germany etc.) and emerging countries (like Brazil). Not all of these sectors will be good buys at this time, but there are fixed income mutual funds that do the selection for you. PIMCO, which is a load fund family , has many of the best bond offerings.
Finally, if you are inclined to continue your education, you can consider investigating preferred stocks. If you don't know, preferred stocks are like bonds in that they usually pay a fixed dividend amount (quarterly or semi-annually) that is greater than rates on bonds. Some very strong companies have preferred stocks that pay between 7-8%. Preferred stocks are junior to a company's bonds, but more senior than its common stock. In the event of a liquidation of the company, the bonds would get paid first, then the preferred stocks, and then the common stock. Because they are junior to the bonds, the preferreds pay a higher dividend rate. Preferreds don't offer much price appreciation potential. They usually have a face value of $25 per share and don't move that much, although the price of preferreds from weaker companies can. Some have terms to maturity and some are perpetual. Preferreds are a way to get higher income than from bonds with a slight increase in the risk that you assume. If you stick to very strong companies, it could be well worth it, but don't go overboard with them.
Good luck. Remember, whether you like it or not, you and your mother alone are responsible for her money. She and you need to learn as much as you both can about the different investments out there, their risks and their benefits. Both of you can learn enough in this area to make sure that you are not ripped off. There is plenty of information out there and it is not that difficult to understand if you are willing to make the effort.

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