We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Trailer Fee?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A trailer fee is a payment from the manager of a mutual fund to a salesperson who provides support and service to customers. As long as a client retains shares in the fund, the salesperson receives a trailer fee. This can potentially create a conflict of interest and investors may want to ask their advisors about any compensation they receive in connection with client activities. Being aware of fees of this nature can help investors make an informed decision when they decide where to invest.

From the perspective of a mutual fund manager, putting sales into the hands of another financial professional can allow the manager to focus on handling the fund. Managers set goals for the fund, analyze available investments, and make decisions on how to distribute assets to maximize returns. Separate salespeople can drive traffic to the fund, increasing the number of investors and making more funds available for investment.

The fund compensates the salesperson for providing advice, recommendations, and information to investors, essentially paying for the salesperson’s services. It is not quite the same as a commission, where people receive payment for making a sale but don’t have ongoing support obligations. Clients expect to be able to contact a sales representative in the future if they have questions or concerns, or wish to exit the fund. Not all funds offer a trailer fee and the amount offered can vary.

Clients may have concerns about a trailer fee because it could influence recommendations. In a situation where a salesperson receives compensation for recommending a particular product, salespeople may be tempted to pick the option that benefits them most, rather than the best product for the client. Customers can ask why a particular fund is being recommended and may want to get information about alternatives before they make a decision to invest. This can help them determine whether a salesperson’s recommendations are in their best interests.

Laws and ethical standards in some regions require financial services professionals to disclose financial relationships before making transactions. In these situations, if a client’s investing decisions will net a trailer fee for the salesperson, this must be discussed. Financial disclosures can also include detailed lists of account fees so clients understand the associated costs with their investments, such as annual maintenance fees the mutual fund may require them to pay as long as they retain shares or transaction fees associated with selling their shares.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.