Trailer fees refer to regular payments made to financial advisors or brokers for recommending and continuing to hold certain investment funds for their clients. These fees are usually a percentage of the client's investment and help compensate advisors for the ongoing services and advice they provide.
Full definition
I think brokerages would not allow you buy mutual funds without transaction costs unless the funds pay some form
of trailer fees.
The advisor will still be compensated with an ongoing annual
trailer fee as long as you hold the fund.
As well, compensation from third parties,
including trailer fees and any other types of payments made to the dealer, will be fully disclosed.
I figured i'd go with a low cost discount broker and not worry
with trailer fees ever again.
Your overall cost may be similar, but at least you'll know that the adviser is selecting funds based on your best interest, not the ones that pay
higher trailer fees.
That's
because trailer fees and commissions don't come directly out of pocket, so many investors are none the wiser to the real cost of advice.
If regulators do their part —
banning trailer fees, and introducing best interest / fiduciary duty — then the growth curve for ETFs will kick into a higher gear.
It is outrageous that discount brokers keep
collecting trailers fees, which are supposed to compensate financial advice.
An investment account in which the advisor's compensation is from trading commissions or
trailer fee commissions paid from a mutual fund.
For many years now, critics of
trailer fees have been saying advisers are more likely to put clients into funds that offer attractive commissions over ones that don't.
The organization to date has been pushing for regulatory changes that would improve transparency of fund fees for investors, but now the issue of ending
trailer fees altogether is on their radar.
D - series: This version is available only through discount brokerages and includes a
reduced trailer fee (usually 0.25 %) to cover processing and administration.
Will generally never suggest paying down debt, instead, some adviser would suggest borrowing more money to invest more so that he can get
more trailer fees.
However, these funds are designed to be sold through advisors, so they may have front - end loads and
trailer fees added.
On the other hand, if a broker sells you a conventional mutual fund, the broker can earn a steady stream of
yearly trailer fees of 0.5 % to upwards of 1.0 %.
Indeed, firms that have kept their fees down and avoided
using trailer fees have provided excellent long - term returns.
For the inexperienced investor, you should consider an investment
with trailer fees, with a high degree of skepticism.
It's not often discussed, but
trailer fees make performance comparisons between mutual funds and ETFs grossly unfair.
If you have $ 100,000 of mutual fund A and that balance never changes — you will pay $ 1,000.00 in
trailer fees in one year.
While everyone would agree that reducing
trailer fees on D - series funds is a great step forward, that 0.25 % still adds up to a lot of money if you're investing heavily in mutual funds.
In addition, regulators will require dealers to disclose the annual dollar cost of
trailer fees by July 2016, as part of an initiative known as CRM2 (Client Relationship Model, phase 2).
«That fund has a very high MER and whoever sold it to her is getting a nice
trailer fee from it,» says Franklin.
If you're a do - it - yourself investor buying mutual funds in a discount brokerage, you should buy «D - series» mutual funds with reduced trailing commissions, or mutual funds offered by providers that don't include
trailer fees at all (such as Leith Wheeler, Mawer and Steadyhand).
The series / purchase option combinations level data provided by industry clearly show that the harm from
trailer fees comes in a few forms:
For mutual fund investors, their new statement discloses only
trailer fees paid to their advisor.
Deferred sales charge funds typically pay the adviser a large kickback up front — around 5 % of assets — and a smaller
trailer fee over the ensuing seven years, as long as the client stays invested.
The insinuation is that old habits die hard and some firms have these arrangements in place because their advisors were accustomed to
earning trailer fees before they came over from the Old Country.
You'll notice that the Investment Savings Accounts pay a
typical trailer fee of 0.25 % to the dealer.
Costs are kept down by using fancy computer algorithms to do the work a normal financial advisor would do, which means investors aren't stuck paying the 1 %
trailer fees which are built into the expense ratios of most mutual funds.
If you're a do - it - yourself investor, you should compare the low cost of ETFs with the growing number of mutual funds designed explicitly for do - it - yourselfers, which are much cheaper than conventional funds because they don't include
full trailer fees for advisors.
We appreciate that the industry has a substantial financial interest in
keeping trailer fees in Canada, with over $ 5 billion per year charged to Canadian investors.
Even if investors don't save a whole lot, they will be much better off
when trailer fees disappear, says Cummings.
According to documents the company filed with the commission as a result of an investigation, the Elliotts» company, Elliott Enterprises — along with Patrick Giesbrecht, another of the presenters on this day — referred hundreds of thousands of dollars of investment to Western Liquid Funding in return for $ 262.25 plus a 0.25 %
trailer fee per month for as long as the money stayed invested.
And any fee - based adviser that recommends some combination of ETFs or other investments will typically charge an asset - based fee somewhere near 1 % a year, which accomplishes much the same thing as a
direct trailer fee.
While both industries covet financial advisers to help sell their products, Sphere president and CEO Lewis Bateman says the firm will «never» pay
advisers trailer fees.
Even though discount brokerages don't provide advice, they collect the
same trailer fee as full - service brokers and advisers, which investor advocates like Bradley say is unfair.
The first is Questrade's Mutual Fund Maximizer program, which rebates
trailer fees back to clients once they exceed $ 29.95 a month.