When brokers charge fees on trades, those fees are usually calculated one of two ways. One way is by charging a percentage of the overall trade amount; i.e., a 10% fee on a $100 trade would be ten dollars. The other way is via a flat dollar fee, which is the same regardless of the trade amount. So if our broker charges a flat dollar fee of $5 per trade, we pay $5 per trade, regardless of whether we’re trading five bucks or five million bucks.
Obviously, if we’re only trading five dollars, a flat dollar fee of five dollars isn’t our most economical choice. But if we’re trading a lot more than that in a given transaction, a flat dollar fee might end up saving us a ton of commish over a percentage fee.
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Finance: What is a 12b1 fee?91 Views
Finance a la shmoop.. what is a 12b1 fee what a clever name like why don't they give
normal names to these things like fund admin expense fee or just name it Bob [Document with Bob written at the top]
but they don't so you just have to memorize what they mean anyway
mutual funds had to bear enormous communications related expenses in the
pre computer-internet everyone has an email address era delivering gobs of [Mail man arrives at house]
paperwork snail mail to its customers it was enough expense to them that well
they frankly just hated doing it and did more or less anything they could to [Man licking envelopes]
avoid having to deliver you know dead trees so along came the investment
advisors act of 1940 which basically recognized that mutual funds did in fact
have expenses that were more than bonuses to the senior partners the 12b1
fee system allowed a fairly set and standard amount of fees to be charged to
customers so that a given mutual fund could recoup the money it had to spend [Fund statement document appears]
mailing annual reports and performance data and tax information and all kinds
of other things to its customers the 12b1 system was basically a
pass through set of charges such that the customer paid for her own paperwork
incentivizing mutual funds to actually do a good job communicating with their [Woman receiving a trophy on stage]
constituency and it let the little guy mutual funds compete against the big guy
mutual funds who already had all that infrastructure of course the biggest
winner out of this entire deal yeah it was the trees especially the ones who [Tree given a first prize award]
got in early on Google
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