A Guide to Trailing Commissions on Investments

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Commissions

When you buy an investment, whether it is a mutual fund, exchange-traded fund (ETF), stocks or bonds, you may be paying a trailing commission. A trailing commission, also known as a trailing fee, is a type of fee you pay your financial broker or advisor each year that you own the investment. In this guide, we will explain what trailing commissions are and how to avoid them.

What is a trailing commission?

A trailing commission is paid to the advisor or brokerage firm that sold you the investment, and it is typically a percentage of the total value of your investment. For example, if you have $100,000 invested in a mutual fund with a trailing commission of 0.50%, you would pay $500 per year in trailing commissions.

How do I know if I am paying a trailing commission?

If you are unsure whether or not you are paying a trailing commission on your investment, you can ask your financial advisor or look up the fees and expenses for your specific investment. For mutual funds, these fees and expenses are typically disclosed in the fund’s prospectus.

How much do investors pay for trailing fees?

The amount that investors pay for trailing commissions varies depending on the type of investment and the advisor or firm selling it. For example, trailing commissions on mutual funds can range from 0.25% to over 0.50% per year, while trailing commissions on ETFs are typically lower, around 0.15% or less.

What is the justification for trailing commissions?

trailing commissions

Trailing commissions are paid to advisors and firms as compensation for the ongoing services they provide, such as monitoring and managing your investment. trailing commissions also help to cover the costs of operating a brokerage firm, such as research, technology and compliance.

How can I avoid trailing commissions?

There are a few ways that you can avoid trailing commissions on your investments. One way is to invest in fee-based accounts, which typically do not charge trailing commissions. Another way to avoid trailing commissions is to invest in ETFs, which typically have lower fees than mutual funds. Finally, you can negotiate with your financial advisor to see if they are willing to waive or reduce the trailing commission on your investment.

Examples of a trailing commission

Here are a few examples of how trailing commissions can be charged on different types of investments:

  • Trailing commissions on mutual funds can range from 0.25% to over 0.50% per year.
  • Trailing commissions on ETFs are typically lower, around 0.15% or less.
  • Trailing commissions on stocks and bonds are typically much lower than mutual fund fees, around 0.02% to 0.03% per year.

Other types of fees on investments

Besides trailing commissions, there are other types of fees that you may be charged on your investments. For example, management fees are paid to the investment manager to cover the costs of running the fund or portfolio. MERs (management expense ratios) are a type of management fee that is charged on mutual funds and ETFs. Sales charges, also known as loads, are fees that are charged when you buy or sell an investment. Finally, there may also be other miscellaneous fees charged on your investments, such as account maintenance fees or transaction fees.

fees on investments

When it comes to investments, it is important to be aware of the different types of fees that you may be charged. trailing commissions are just one type of fee that you may encounter. By understanding what trailing commissions are and how to avoid them, you can help to keep more of your investment returns.

One company that charges a trailing fee is Symmetry Financial Group, which was founded in North Carolina and sells a variety of insurance products. It offers low rates on its products to licensed agents.

Check out our review of Symmetry on I Buy I Review. We buy a variety of online programs and review them for you so you don't have to!