Fund Costs

Annual marketing and distribution fees charged by mutual funds, named after SEC rule 12b-1. Limited to 0.25% for no-load funds and 1.00% maximum for all funds. Included in expense ratio.

Example: A fund with 1.2% expense ratio might include 0.75% management fee and 0.25% 12b-1 fee....

The investment threshold at which mutual fund sales charges (loads) decrease, encouraging larger investments through volume discounts. Breakpoints typically occur at specific dollar amounts ($25K, $50K, $100K, $250K, etc.). A broker-dealer or agent soliciting fund shares must disclose any relevant breakpoint discount and any available letter of intent feature (where the fund offers rights of accumulation, existing holdings also count toward a breakpoint). Selling shares just below a breakpoint to avoid the reduced load (and earn higher commission) is a prohibited practice called a "breakpoint sale."

Example: A fund charges 5.75% on investments under $50K, 4.50% for $50K-$99K, and 3.75% for $100K+. An invest...

The annual fee charged by a mutual fund or ETF, expressed as a percentage of average net assets. Includes management fees, administrative costs, and 12b-1 fees. Automatically deducted from fund returns, reducing net performance.

Example: A fund with a 1.00% expense ratio charges $100 annually per $10,000 invested. On a $50,000 investmen...

A Letter of Intent (LOI) is a non-binding statement by a mutual fund investor pledging to invest enough additional money over a forward period (usually 13 months) to reach a breakpoint, qualifying for the reduced sales charge on all purchases made under the LOI starting immediately. Many funds allow the LOI to be backdated, usually up to 90 days, to include recent purchases.

Example: A client wants to invest $30,000 today in a Class A fund. The fund’s breakpoint schedule charges 5.7...

A sales charge (commission) paid when buying or selling mutual fund shares, compensating brokers and distributors. Front-end loads are deducted at purchase (maximum 8.5% of the offering price per FINRA for a fund with no asset-based sales charge); back-end loads (CDSC) are charged at redemption and typically decline to zero over about 6 years. No-load funds charge no sales loads but may charge 12b-1 fees up to 0.25%.

Example: An investor buying $100,000 of Class A shares with a 5.75% front-end load pays $5,750 in sales charg...

A mutual fund privilege, offered at the fund's option, that counts the value of shares an investor already owns, measured the way the fund's prospectus states, toward the breakpoint discount on a new purchase. Financial Industry Regulatory Authority (FINRA) Rule 2341(b)(7) allows three ways to value the shares owned: their current value, total purchases at the prices actually paid, or the higher of the two. The prospectus or statement of additional information also states which related accounts count, such as a spouse's or children's holdings, or other funds with the same principal underwriter. The firm should ask the investor about holdings in other accounts and in related parties' accounts, so they are counted. Unlike a Letter of Intent, rights of accumulation require no commitment to future purchases.

Example: An investor owns $40,000 of ABC mutual fund at current net asset value (NAV), and the prospectus cou...

Mutual fund share classes (typically A, B, and C) carry different sales-charge structures and ongoing expenses while representing ownership in the same underlying portfolio. The same fund is sold under multiple classes so investors can match the cost structure to their holding period and investment size.

Example: A client invests $80,000 in the XYZ Growth Fund. Class A charges a 5.0% front-end load (reduced to 4...

A surrender charge (also called a Contingent Deferred Sales Charge or CDSC) is a back-end fee applied when an investor withdraws from a variable annuity or sells Class B or Class C mutual fund shares within a defined window. The charge typically declines to zero over a multi-year schedule and exists to recover sales costs, such as the commission paid to the selling firm at the time of purchase.

Example: An investor purchases a variable annuity with a 7-year declining surrender schedule of 7/6/5/4/3/2/1...