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Understanding Fees and Charges That May Apply to Your Investments

Investment products including, but not limited to mutual funds, alternative investments, and variable annuities may offer multiple share class options with varying fees and charges. 

When considering investment options, it is important you understand the sales charges (commonly referred to as “loads”), expenses and management fees that you will be charged, as well as potential volume discounts (often referred to as “breakpoints”) to which you may be entitled. Understanding these charges and volume discounts will assist you in identifying the best investment for your particular needs and may help you to reduce the cost of your investment.

You should discuss this information with your financial professional and review each product’s prospectus or offering document and statement of additional information, which are available from your financial professional, to obtain the specific information regarding the charges and discounts associated with a particular investment option. 

Though not a comprehensive list, the following represent the most common types of compensation structures associated with share classes:

Front-end Load
Sales charge is deducted from your investment at the time you buy the investment. This sales charge is a percentage of your total purchase. Some investments offer volume discounts to the front-end sales charge assessed on certain share classes at predetermined levels of investment. 

Back End Load
No sales charge is deducted at the time of purchase; however, you may be required to pay a sales charge known as a contingent deferred sales charge when you sell the shares (the surrender period), depending upon the terms of the particular investment.  The load tends to drop, perhaps by a percentage point each year, and then disappears altogether.  These share classes usually carry higher internal operating expenses than front end load shares.  They may convert to another share class after a predetermined holding period.

Level Load
An annual charge (also commonly referred to as a “12b-1 fee”) is deducted from your investment for as long as you hold the investment. These share classes typically do not have set surrender periods.  

No Load
These investments do not impose sales charges and you typically buy shares directly from the investment company. The same funds may be available, with a load, through a financial professional. While no-load funds have no sales charges, they may still charge 12b-1 fees, purchase fees, redemption fees, exchange fees, and account fees in addition to the operating fees that all funds charge.

Load Waived
If permitted by the issuer, some investments may be purchased on a net of commission basis. Load waived shares may be purchased in commission or advisory accounts, depending on the type of investment product. For load waived investments in advisory accounts, your financial professional will be acting as an investment advisor representative of a registered investment adviser (RIA). As such, your financial professional will be acting in a fiduciary capacity and has the obligation to act in your best interest. Your financial professional may provide ongoing investment advice on the investment. Compensation will be paid to the financial professional based on a fee as further outlined in the client investment management agreement. 

If you wish to learn more about investment product types and associated charges, click here to visit the FINRA website or here to visit the SEC website.