Trailing Commissions

By Sandy Naidu | September 1, 2008

Another fee hidden inside the management fee is the ‘trailing commission’. It is usually between .25% and .88%.

Management Expense Ratios And Trailing Commissions

Not all fund managers charge a trailing commission fee but most do. This is the ongoing fee paid to the adviser by the fund manager (the financial adviser who recommends you the fund). This fee is supposed to cover the ongoing service offered by the adviser to you.

He is supposed to periodically review the portfolio and how the fund is fitting in there…It is for this service the funds pay the advisers.
The reality is much different…The fee is actually being paid to thank the advisers for the loyalty (for picking this fund). It is a rip off….Even the people who go direct to the fund manager (without an adviser) have to pay this fee (because it is hidden inside the MER).

Some advisers actually rebate the fee back to you or they subtract it from an annual or monthly fee they charge you. Also if you move advisers, you can inform the fund manager to pay the commission to your new one rather than the old one..

Whilst getting this fee abolished is a topic for another day, you should find out the following when you are dealing with the financial planner:

what the trailing commissions are for every fund recommended
if the commission is too high, turn your radars on and start investigating if the commission is the reason they are recommending it
try to get the advisers pay you back the trailing commission
if thats not possible atleast make sure the commission amount is subtracted from any ongoing fees you pay them

And always remember - Its Your Hard Earned Money and so there is no harm in asking as many questions as you need too…