Negotiating better commissions

Here’s a little-known fact that may help you get a better deal when making new fund investments. Typically (but not always), financial advisors receive an annual trailer fee of 0.5% on deferred sales charge units. However, the trailer fee on front-end load units is significantly higher, usually around 1%. (Trailer fees are paid annually by the fund company for as long as you own the units so they represent a kind of annuity for the advisor.)

Front-end load units offer much greater flexibility, because you can sell at any time without penalty. So, faced with the two options, they’re the preferred choice. Some advisors now offer them at zero commission in order to get your business and earn the higher trailer fee. Armed with this bit of information, you may be able to persuade your broker or planner to give you a similar deal.