Do trailer fees affect advice?

Q – I have a substantial amount sitting in a money market fund. When I suggest removing putting this money to better use, my broker is reluctant. I’m wondering if there is a trailer fee for brokers on money market funds as opposed to the higher MER funds the company carries and could there be a conflict of interest here? Can you explain how this works? – C.J.

A – Sounds to me as though your broker has been giving you good advice, depending on what you consider to be “better use”. Certainly you were better off staying in the money fund over the past year as opposed to redeploying the cash into equity funds.

Regarding trailer fees, some money market funds pay a small annual trailer (usually no more than a quarter-point), others pay nothing. By comparison, a typical bond fund pays a 0.5% trailer on a front-end load sale, and half that on a DSC purchase. An equity fund may pay a trailer of 1% on a front-end load sale and half that on a back-end load. However, these figures will vary from one company to another so if you want specifics, ask your broker.

If there is any conflict of interest potential, it would bfor the broker to be pushing you out of the money fund and into equity funds that pay higher trailers. It certainly doesn’t seem like that’s the case here. – G.P.