Mutual funds that pay no trailer commissions are a rare breed

Buying mutual funds through a discount broker? You are probably paying for something you aren't getting: advice.

Wendy Stein 19 March, 2018 | 5:00PM
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The Morningstar database tracks more than 650 Series D mutual funds, which are aimed at self-directed investors who deal with discount brokers or directly with the fund company. Nearly all of them include embedded commissions in their management-expense ratios (MER).

Also known as trailing commissions, these are ongoing payments made by mutual-fund companies to fund dealers and investment brokerages, including discounters, for as long as the investor continues to hold the fund. In full-service distribution channels, they are designed to compensate advisors for providing ongoing advice and service concerning their investments and personal finance.

Since discounters provide no advice and very little service beyond order-taking, trailing commissions payable to them for selling Series D funds are much lower than for the corresponding Series A funds that are designed for commissioned-advice channels.

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About Author

Wendy Stein

Wendy Stein  Wendy Stein is a product manager at Morningstar Canada. She manages products for investment research, portfolio construction and retirement planning. Before joining Morningstar in 2010, she worked as a product manager in the mutual- fund industry for Invesco and Manulife in Canada and Legg Mason in the UK.

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