Mutual Fund Fees and Services Flashcards
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Read the first 7 Mutual Fund Fees and Services flashcards as text
A client redeems their mutual fund units after holding them for only 6 months under a deferred sales charge (DSC) schedule. What is the likely outcome?
Answer: A redemption fee is charged based on the DSC schedule, typically highest in early years
DSC schedules impose redemption fees that are highest in the early years and decline annually, so a 6-month redemption would trigger a significant fee.
Which of the following best describes a trailing commission (trailer fee)?
Answer: An ongoing fee paid by the fund company to the dealer for servicing client accounts
Trailing commissions are ongoing payments from the fund company to the dealer/advisor as compensation for continued client servicing and advice.
Under the low-load (LL) sales charge option, redemption fees typically apply for how long after purchase?
Answer: Up to 2 to 3 years
Low-load funds typically have a short DSC schedule of 2 to 3 years, compared to the standard DSC schedule of up to 7 years.
A mutual fund's management expense ratio (MER) is 2.5%. What does this figure represent?
Answer: The total annual cost of the fund expressed as a percentage of average net assets
The MER is the total annual cost of running the fund — including management fees, operating expenses, and taxes — expressed as a percentage of average net assets.
Which type of mutual fund fee is negotiable between the client and the advisor at the time of purchase?
Answer: Front-end sales charge (FE)
The front-end load is negotiable between the advisor and client, and can range from 0% to the maximum allowed (typically up to 5% or 6%).
A client wants to switch from one fund to another within the same fund family under a DSC schedule. What typically happens to the DSC clock?
Answer: The original purchase date is retained and the DSC clock continues from there
Most fund companies allow switches within the same family without triggering DSC fees or resetting the clock, so the original purchase date is preserved.
Which of the following costs is NOT typically included in a mutual fund's MER?
Answer: Brokerage commissions paid to execute portfolio trades
Brokerage commissions on portfolio trades are typically reported separately as the trading expense ratio (TER), not included in the MER.