Reviewed by Sep 28, 2020| Updated on
What Is a Trailer Fee?
A trailer fee is a fee paid to a salesperson by a mutual fund manager who sells the fund to investors. The trailer fee is paid to a salesperson for continued investment advice and the services provided to the investor.
The fee will be paid to the advisor annually as long as the investor retains the portfolio. The trailer fee is also regarded all over the financial sector as a "trailer board."
How Does a Trailer Fee Work?
A trailer fee is one that mutual fund management withholds. There are various reasons for paying mutual fund fees. Often you'll see payments for investor purchases with them. Mutual fund investors are usually charged a fee when buying, selling, or redeeming shares in the mutual fund.
Certain charges, including the trailer fee, are related to the mutual funds' total operating costs. Other expenses that you may encounter when examining fees related to the operation of the mutual fund include investment advisory fees, marketing and distribution expenses, brokerage fees, custodial fees, transfer agency fees, legal fees and accounting fees.
Advantages and Disadvantages of a Trailer Fee
If a mutual fund pays a trailer fee, it is specified in the prospectus of the mutual fund. It will appear as part of the total management fee for the mutual fund. Mutual funds must provide full notice of all fees charged by the fund. Usually, the management fee of a mutual fund is shown on the marketing collateral with the characteristics of a fund.
Investors should inquire whether a trailer fee is being paid to a mutual fund salesperson or not. It is important to note that there is some debate about trailer fees. The explanation for the debate has to do with their potential to cause conflicts of interest.