Mutual Fund Fees and Services Flashcards
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Read the first 7 Mutual Fund Fees and Services flashcards as text
A mutual fund company charges a 'setup fee' of $150 when a client opens a new registered account. This fee is best categorized as:
Answer: An account administration fee separate from investment management costs
Account setup and administration fees are separate from the fund's MER and are charged by the dealer or fund company for account maintenance services.
An investor holds 1,000 DSC fund units currently worth $20 per unit. The DSC schedule shows a 3% fee still applies. How much would the DSC fee be on a full redemption?
Answer: $600
DSC fees are calculated on the redemption value: 1,000 units × $20 = $20,000, and 3% of $20,000 = $600.
The Fund Facts document must include which of the following cost-related disclosures?
Answer: The sales charges, ongoing fund expenses, and impact of costs on a $1,000 investment
Fund Facts must clearly disclose sales charges, the MER, and a standardized example showing the cost impact on a hypothetical $1,000 investment over 1, 3, 5, and 10 years.
Which of the following mutual fund purchase options would result in the lowest immediate out-of-pocket cost to a client at the time of investment?
Answer: Deferred sales charge (DSC)
Under DSC, no sales commission is paid at purchase — the full investment amount goes to work immediately, with fees only applying if the client redeems early.
A fund company offers a 'PAC' (pre-authorized chequing) service. What is its primary benefit to investors?
Answer: It automates regular contributions, enabling dollar-cost averaging discipline
PAC plans automate regular contributions to a mutual fund, promoting disciplined saving and naturally implementing dollar-cost averaging over time.
When comparing mutual fund share classes (e.g., Series A vs. Series F), the primary difference is typically found in:
Answer: The distribution of fees — specifically whether trailer commissions are included in the MER
Series A includes trailer commissions in the MER for advisor compensation, while Series F strips out the trailer for fee-based accounts — the portfolio and strategy are otherwise identical.
A client complains that their mutual fund's rate of return shown on their statement differs from the fund's published performance. The most likely cause is:
Answer: The client's personal rate of return reflects their individual timing of contributions and withdrawals
A client's personal rate of return is affected by when they invested and withdrew money, which can differ significantly from the fund's time-weighted return published for all investors.