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.
These fees are generally one-time fees assessed at the time a transaction is made. Examples of transaction fees include:
Paid on the purchase and sale of a stock.1
Mark Ups / Mark Downs
Occur when a broker-dealer sells or buys an investor a position that it owns. FINRA guidelines ensure the prices paid by investors are reasonably related to the market for the security.2
The sales charge for buying a mutual fund. They may either be front-end (charged when you buy the fund) or back-end (charged when you sell the fund). Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
This fee is assessed when an investor sells an annuity prematurely. Generally, it is a percentage of the amount withdrawn.3
A charge some mutual funds assess if a fund position is not held for a prescribed period of time.
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
Mutual funds and exchange traded funds (ETFs) have ongoing fees that pay for the management of assets and any administrative and service (or distribution) fees. ETFs also are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Annual Variable Annuity Fees
In addition to the annual operating expenses of the funds contained in an annuity, an annuity may have additional service fees, administrative charges, and insurance costs. Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks, as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or from your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions, and may be worth more or less than the original amount invested if the annuity is surrendered.
Some products or investment platforms may charge a combination of transaction fees and ongoing asset-based fees. Examples include:
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.
Funds may be sold with a sales load and also assessed ongoing fees.
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 this material is 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 professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.
Dr. Jason Van Duyn
AQuest Wealth Strategies
Dr. Jason Van Duyn CFP®, ChFC, CLU, MBA is a Registered Representative with and Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. The LPL Financial registered representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN, IL, TX, MI, NC, AZ, VA, FL, OH and CO.