A shares: are mutual funds that charge an upfront commission to compensate for the sales person's commission. The commissions range from 0% for a $1 million investment (also called investing at NAV) up to 5.75%. The internal fees on "A" shares are almost always lower than the internal fees on “B” or “C” share funds. These funds do not have a back-end sales charge or a required holding period.
B shares: are mutual funds characterized by a back-end sales charge that is paid when the fund is sold. Over time, the back-end sales charge decrease to zero (typically 7 years). The internal fees on “B” shares are generally more expensive than those of “A” shares. “B” shares should only be purchased by investors who have a time horizon that is longer than the surrender period.
Basis Point or bps: a financial term that refers to a percentage of 1%. For example, 100 basis points equals 1%.
C shares: are mutual funds that generally have a short holding period, often 1 year. They do not have an upfront sales charge and generally have a 1-2% penalty during the first year if it is sold within 12 months. They generally have higher internal fees than “A” or “B” shares.
Contingent Deferred Sales Charge (CDSC): a sales charge that is charged when a client surrenders or withdrawals more than an allowable amount and is charged a penalty. These fees can be up to 8.5% and a holding period of between 1 to 10 years typically.
Custody: an entity that is legally responsible for insuring that an item or person is safe and secure. In investment terms, a custodian is the financial services company that maintains electronic records of financial assets or has physical possession of specific securities.
Death Benefit: benefits on life insurance and annuities that protects a client’s beneficiaries from loss in the event the client or insured dies.
Discretion: the ability to make decisions without the need to consult others. A discretionary account gives the broker the right to make significant investment decisions without permission from or consultation with the accounts owner.
Expense Ratio: the annual cost of owning a particular investment. For example, if XYZ mutual fund has an expense ratio of 1%, this means XYZ company charges 1% on the entire assets of the fund.
Fee based account: an account that is offered by financial professionals to which a fee is charged based on the total dollar value of the account. The fee, which can range from ½ of 1% to 3%, is charged in addition to the fees charged by the mutual funds or money managers. Generally managed money and wrap accounts are referred to as fee based accounts.
Fixed Annuity: an annuity that offers a guaranteed return over a specific period of time.
Fund Class: a term used to denote the different types of mutual funds.
Investment Adviser: any person, who for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities; but does not include (A) a bank, or any bank holding company as defined in the Bank Holding Company Act of 1956 which is not an investment company; (B) any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; (C) any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefore; (D) the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation; (E) any person whose advice, analyses, or reports relate to no securities other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or securities issued or guaranteed by corporations in which the United States has a direct or indirect interest which shall have been designated by the Secretary of the Treasury, pursuant to section 3(a)(12) of the Securities Exchange Act of 1934, as exempted securities for the purposes of that Act; or (F) such other persons not within the intent of this paragraph, as the Commission may designate by rules and regulations or order.
Institutional Shares and Load Waived A Shares commonly called F, I, Y, Z shares: are mutual funds that are traditionally only available to institutional clients or clients of Registered Investment Adviser firms. Often funds are “wrapped” with a fee of 1-3%. Their internal fees are generally lower than “A”, “B”, or “C” shares. InvestForLess does NOT add ANY wrap fees to these share classes.
Living Benefit: an extra benefit or “rider” that can be added to a variable annuity, for an additional fee. These benefits often offer additional protection such as the promise of income a client can never outlive.
Load Fund: a mutual fund available with a sales charge.
Managed Money: a fee based account that generally holds separately managed accounts NOT mutual funds. A professional money manager assumes responsible for managing the securities portfolio of an individual or institutional investor. In return for a fee, the money manager has the fiduciary duty to choose and manage investments prudently for his or her clients, including developing an appropriate investment strategy, and buying and selling securities to meet those goals.
Mutual Fund: an investment vehicle, which allows an investor to pool their money with many other investors in order for fund managers to purchase many individual stocks, bonds, or alternative investments for diversification purposes.
NAV or Net Asset Value: is the worth of an entire portfolio (i.e. a mutual fund or REIT) after all fees have been taken out, divided by the number of shares.
No Load Fund: a mutual fund available at no sales charge.
Non-Traded REIT: a real estate investment trust that is not traded on the national stock exchanges. Investments typically last for a set time period, usually 10 to 12 years. At the end, investors cash out through an initial public offering, a merger, or a liquidation. The investment usually lacks the liquidity of a publicly traded REIT and may be difficult to redeem or sell to a third party. Also called unlisted REIT, private REIT, and nonpublicly traded REIT.
No Transaction Fee Fund: a mutual fund that can be purchased without any fee.
Publicly-Traded REIT: a Real Estate Investment Trust that has been registered with the Securities and Exchange Commission and trades on an exchange.
R Shares: are mutual funds that are only available in retirement plans, such as 401k’s. These often have lower fees than many other classes, but may have a surrender penalty.
Registered Investment Adviser: a person or firm, which usually is registered with the Securities and Exchange Commission.
REIT: refers to Real Estate Investment Trust. A REIT, created by an act of Congress in 1960, is intended to provide investors with the opportunity to participate directly in the ownership or financing of real estate projects by providing them with a tradable interest in a pool of real estate-related assets. REITs own, and often operate, income-producing real estate such as office buildings, apartments, shopping centers, warehouses and hotels.
Sales Charge: the cost an investment company charges for buying a specific investment.
Separately Managed Accounts: are professionally managed portfolios in which the individual’s money is NOT pooled with other investors and the investor holds the individual securities. These accounts are typically only available to clients with large portfolios, as each manager generally requires $100,000 or more to invest.
Short Term Redemption fee: a fee charged when a client withdrawals more than the allowable amount, or fully liquidates their account, before a certain time.
Transaction Fee Fund: a mutual fund, which can be purchased with a fee.
Variable Annuity: an investment product that allows an investor to own mutual fund-like investments, called separate accounts, in a tax-sheltered environment. Often times an investor can purchase additional protection benefits, such as living or death benefits, for additional fees.
Wrap Account: most often this term refers to a collection of mutual funds that is placed in an account that charges fees as a percentage of assets on top of the fund expenses.