What is a trailer fee and who pays it?

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Multiple Choice

What is a trailer fee and who pays it?

A trailer fee is ongoing compensation paid to the dealer or advisor for ongoing distribution and client servicing of a fund. It’s funded by the fund itself and is typically embedded in the fund’s ongoing costs, like the management expense ratio, so you indirectly pay it through the fund’s fees as you hold it. It continues as long as you hold the fund, not just at purchase or upon redemption, and is not paid to regulators. One-time fees charged at purchase are front-end loads, which are not the same as a trailer fee. Fees paid upon redemption are back-end loads, not trailer fees. And fees paid by the fund manager to regulators don’t describe the ongoing broker compensation that trailer fees represent.

A trailer fee is ongoing compensation paid to the dealer or advisor for ongoing distribution and client servicing of a fund. It’s funded by the fund itself and is typically embedded in the fund’s ongoing costs, like the management expense ratio, so you indirectly pay it through the fund’s fees as you hold it. It continues as long as you hold the fund, not just at purchase or upon redemption, and is not paid to regulators.

One-time fees charged at purchase are front-end loads, which are not the same as a trailer fee. Fees paid upon redemption are back-end loads, not trailer fees. And fees paid by the fund manager to regulators don’t describe the ongoing broker compensation that trailer fees represent.

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