How Financial Professionals Are Compensated
The fees that investors pay to financial professionals for their advice and services come in two basic forms: transaction fees and ongoing fees. While professionals may differ in what fees they charge, they are required to fully disclose them.
Transaction Fees
These fees are generally one-time fees assessed at the time a transaction is made. Examples of transaction fees include:
Commissions
Mark Ups / Mark Downs
Sales Loads
Surrender Charges
Redemption Charge
A charge some mutual funds assess if a fund position is not held for a prescribed period of time.
Ongoing Fees
These fees are levied for as long as an investor remains in a particular investment or investment platform. They typically are calculated as a percentage of assets. Examples of ongoing fees include:
Fees for Professional Investment Services
These are the fees an investment professional charges to manage assets.
Annual Operating Expenses
Annual Variable Annuity Fees
Combined Fees
Some products or investment platforms may charge a combination of transaction fees and ongoing asset-based fees. Examples include:
ETFs
When you invest in an ETF, there is a transaction fee at the time of purchase and when it is sold, as well as an ongoing fee to manage the fund.
Mutual Funds
Funds may be sold with a sales load and also assessed ongoing fees.
Investment Programs
While most programs offer an inclusive ongoing fee for advice and transactions, some programs may charge both forms of fees.
Don’t Be Afraid to Ask Questions
Investors should be aware of what they are paying for a professional’s services and advice. Don’t hesitate to ask questions like “How do you get paid?” or “Do I have a choice of how I pay you?”
1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Past performance does not guarantee future results.
2. FINRA is an acronym for Financial Industry Regulatory Authority, which is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry.
3. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59 1/2, a 10% federal income tax penalty may apply (unless an exception applies).
The content is developed from sources believed to be providing accurate information.The information in the material in not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information, should not be considered a solicitation for the purchase or sale of any security.
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