The Hidden Joy of Trail Commissions
Posted on: October 16, 2016, by : fadmin

Those that invest in mutual funds may or may not pay a small amount for maintenance of the fund. If you don’t pay a small or medium account you may be paying more than you should. I can’t tell you when it becomes excessive, but you really need to see if it’s worth it when paying more than 1%. If you are paying less than 0.5% then you can feel pretty good about what you’re paying, but that assumes you are making money on the fund.

So we pretty much know about the regular fund fees and most of us should know about “load” fees that can be charged when the fund shares are bought or sold. In my opinion it would have to be a great fund to warrant this, especially on the front end since what if the fund does not perform? Your investment suffers while the fund managers still get paid beyond the normal fee. And they get paid based on what you invest, NOT on how much profit they make for you.

Anyway, I just learned about something I did not know, and that is something called a “trail commission”. This is an ongoing fee that is paid to the broker for as long asĀ  you own the fund. That’s right. Own the same fund for years, even if you change brokers(I think), and they still profit from it. I don’t know how much this can amount to, but as you can see, the incentive to sell you a fund has an additional temptation that may cloud what is in YOUR best interest.

Financial advisors should disclose this little fact and consider turning the fee they receive over to the client, if that client is paying them an account percentage for their advice. No man can serve two masters and at best this appears as a conflict of interest.

So I have a new list of how your broker or financial advisor makes money from you:

  • 1% or more management fee
  • Mutual fund load fees (I don’t think they get it all, but they get some of it)
  • Trail Commissions – Year in and year out the cash keeps rolling in

 

MORE:

http://www.investopedia.com/ask/answers/091815/do-financial-advisors-get-paid-mutual-funds.asp

https://en.wikipedia.org/wiki/Trail_commission

 

3 thoughts on “The Hidden Joy of Trail Commissions

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