With so many different mutual funds available today, Comerica
Securities Inc. wants to help you to ensure that you are investing in
the mutual fund that best suits your investment objectives, risk
tolerance, and personal needs.
The following information will help you better understand
different mutual fund share classes, breakpoints, expenses of funds,
and how Comerica Securities and your Financial Consultant are
compensated when you invest in mutual funds. Before investing in any
mutual fund, you should consider the information provided in this guide
and read the mutual fund prospectus carefully for specific information
about a fund’s risks, fees, expenses, and strategy. Other resources
regarding information on mutual funds can be found in the “Additional
Information” section of this guide.
Please consult with your Comerica Securities Financial
Consultant if you have any questions about mutual fund investing or you
can call our our Client Services group at 1-800-232-6983.
How mutual funds work
A mutual fund pools money from shareholders and a
professional manager invests the money into a single portfolio based on
the objective of the fund. Depending on this objective, the portfolio
manager can invest in stocks, bonds, options, commodities, money market
securities, or any combination of these. The ability of the fund
manager to invest this pool of money over many investments is called
diversification and helps minimize the risks associated with investing
in an individual financial instrument. Investors buy shares of the
fund, while the fund itself owns the underlying investments that have
been chosen by the portfolio manager. Most mutual fund companies offer
the investor more than one type of share class. Each class represents
the same interest or ownership in the fund with the same investment
objectives and strategies. However, each share class will have
different fees and expenses associated with them. For this reason, each
class of shares will likely have different performance results.
While there are many different classes of mutual fund shares
offered to both institutional and retail investors with different fee
structures, including no-load shares, the most common share classes are
Class A, B, and C shares. To help you determine which share class may
best fit your needs, you should consider the following questions:
- How long do you intend to hold the shares?
- How much money will you initially be investing?
- Will you be investing more money in the future?
- Do you already own shares of a fund company?
- What expenses will you pay for each share class?
While there are many other considerations as to what mutual
fund to invest in, answering these questions first can help you begin
to make the determination of which share class may be best suited for
your individual needs.
The Financial Industry Regulatory Authority, Inc. has
available a mutual fund expense analyzer which will allow you to
compare the expenses of different mutual funds or the different share
classes of the same mutual fund. This analyzer, along with various
other resources can be accessed at: www.finra.org or
Class A shares
Class A shares typically charge a front-end sales charge
commonly referred to as a load. When you buy Class A shares with a
front-end sales charge, this charge is deducted from the amount
initially invested in the fund. While Class A shares may impose an
asset-based sales charge, ongoing fees and expenses are generally lower
than those charged by Class B and C shares. Additionally, mutual fund
companies typically offer a reduced sales charge, at different levels
called “breakpoints, depending on the amount you invest. Please see
more information on this topic under the “Understanding Breakpoints”
Class B shares
Class B shares typically do not charge a front-end sales
charge and your entire initial investment is invested in the fund.
However, Class B shares typically have higher internal ongoing expenses
than Class A shares. These expenses will reduce your returns by the
amount they exceed the internal expenses of A shares. Class B shares
also impose a contingent deferred sales charge (CDSC), which you pay
when you sell your shares. For this reason, these should not be
referred to as "no-load" shares. The CDSC normally declines and
eventually is eliminated the longer you hold your shares (the decline
period varies between mutual fund families, but it may last anywhere
from 5 to 8 years). Once the CDSC is eliminated, Class B shares often
then "convert" into Class A shares. When they convert, they will begin
to charge the same internal fees and expenses as the Class A shares.
If you intend to purchase a large amount of Class B shares,
you may want to discuss with your Financial Consultant whether Class A
shares would be preferable. The expense ratio charged on Class A shares
is generally lower than for the Class B shares, and the mutual fund may
offer large-purchase breakpoint discounts from the front-end sales
charge for Class A shares.
Class C shares
Class C shares usually do not impose a front-end sales
charge on the purchase, so the full dollar amount that you pay is
immediately invested. Generally, Class C shares impose a small charge
if you sell your shares within a short time of purchase, usually one
year. Class C shares typically impose higher ongoing fees and expenses
than Class A shares, and since their shares generally do not convert
into Class A shares, these expenses will not be reduced over time. For
this reason, if you are intending to hold your Class C shares for a
longer period of time, they will be more expensive to hold than Class A
or even Class B shares. Class C shares should probably not be used
unless you have a short time horizon and you do not qualify for
breakpoints or other sales charge reductions.
Most mutual funds often offer discounts on front-end sales
charges or loads for larger investments in Class A shares. The
investment levels at which the discounts become available are called
"breakpoints” and vary from fund family to fund family. For example, a
purchase of $49,500 in mutual fund shares may be charged a front-end
sales load of 5.75% or $2,846.25, while a purchase of $50,000 in the
same fund shares might be charged a sales load of 4.50% or $2,250. In
this example, by choosing to invest $500 more, you would have saved
$596.25 in sales charges which means an additional $1,096.25 ($500 +
$596.25) increase in your initial investment. Typically, there are
several breakpoint levels and if you invest more and reach each of
these thresholds, the greater the reduction in the sales load. In
addition, you may become entitled to receive a breakpoint discount
based on rights of accumulation or by using letters of intent.
The Financial Industry Regulatory Authority, Inc. has
published an Investor Alert, which provides additional information
regarding availability of breakpoints. Please go to this website to
access this publication:
Rights of accumulation
A right of accumulation (ROA) typically gives you a discount
on your current mutual fund purchases by combining both your current
and previous fund transactions to reach a breakpoint. For example, if
you are investing $10,000 in a fund today, but previously had invested
$40,000, those amounts can be combined to reach a $50,000 breakpoint,
which will entitle you to a lower sales load on your $10,000 purchase.
Letters of intent
If you can't immediately invest the minimum amount necessary
to trigger a breakpoint discount and you are planning to make
additional investments over the coming months, you might still be able
to obtain a reduced sales charge by means of a letter of intent (LOI).
An LOI is a statement you sign that expresses your intent to invest a
certain amount within a given period of time which will entitle you to
the breakpoint charge as specified by the fund. Many fund companies
permit you to include purchases completed within 90 days before the LOI
is signed and within 13 months after the LOI is signed in reaching the
dollar amount of the breakpoint threshold. If you expect to invest
regularly in a fund with a front-end sales load, it is worth finding
out if a LOI can help you qualify for a reduced charge. However, if you
do not fulfill your commitment for the total dollar amount within the
specified time frame, the discounted sales charges from previous
investments will be recaptured by the fund and the fund reserves the
right to sell shares you own to claim this amount.
In the case of either ROAs or LOIs, you usually may use
mutual fund assets in other related accounts, in different mutual fund
classes, or in different mutual funds that are part of the same fund
family, toward your discounts. For example, a fund may allow you to get
a breakpoint discount by combining your fund purchases with those of
your spouse or children. You also may be able to credit mutual fund
transactions in retirement accounts, educational savings accounts, or
in accounts at other brokerage firms.
Each mutual fund and family of funds set their own
breakpoints and the conditions through which discounts are available.
These terms and conditions differ from one fund to another, and they
also can change. It is important to inform your Financial Consultant of
any other holdings in a fund family in order to determine any
breakpoints you may qualify for. You can also find specific information
on fund breakpoints in the mutual fund prospectuses and Statement of
Additional Information or on most mutual fund company Web sites.
Net Asset Value (NAV)
Transfers and Buybacks
Mutual fund investors may wish to consider the benefits to
buying into the same family of funds not only for their breakpoint
discounts but to also to take advantage of NAV transfers. Investors
that transfer their funds from one fund into another fund within the
same family of funds are able to buy the new shares at NAV. Another
advantage is buying back mutual fund shares that were previously sold.
Some mutual fund companies allow for buyback without incurring a front
end sales load if purchase is completed within a certain amount of
time. Please see the mutual fund prospectus and Statement of Additional
Information for additional information; this information is also
available on most mutual fund company Web sites.
Please be aware that sales, redemptions or exchanging
between mutual funds are considered taxable events and you should
consult your tax advisor prior to making any such investment decision.
Comerica Securities offers mutual funds in both fee-based
brokerage accounts and in our investment advisory program accounts.
Instead of paying a sales charge or commission on each transaction, you
pay an annual fee, billed quarterly in advance based on a percentage of
the value of the assets held in the account. These accounts offer funds
that are load-waived or no-load fund shares. However, the annual
operating expenses charged by the fund still apply to these shares.
These fee-based programs and accounts provide features and benefits
that may not be available in a traditional brokerage account. The total
cost of purchasing and holding a fund in these programs may be more or
less than in a traditional brokerage account. Please ask your Financial
Consultant to provide you with more information about these potential
cost differences and whether a fee-based account is appropriate for you.
12b-1 fees, costs and expenses
Annual fund operating expenses, or the cost of doing
business, include management fees, distribution and marketing expenses
commonly called 12b-1 fees, the cost of shareholder services fees and
other expenses. You do not pay operating expenses directly; rather,
they are deducted from the fund’s total assets, so they reduce
investment returns. The prospectus includes the fund’s expense ratio
which will help you compare annual expenses of different funds.
How compensation is paid to Comerica Securities, Inc. and
your financial consultant
Comerica Securities, Inc. (CS) and our Financial Consultants
(FC) routinely receive compensation for the sale of mutual funds.
Payments from mutual fund companies to CS may consist of a portion of
any front-end sales charges, selling fees, or concessions (depending on
the share class in which you invest), fees for distribution (Rule 12b-1
fees) and shareholder services fees. The ongoing mutual fund payments
CS may receive from the fund company, of which a percentage may be
passed on to the FC, are based upon the amount of your investment held
with the fund and are paid in consideration of the ongoing servicing
and operational support provided. The Rule 12b-1 fees and shareholder
service fees are paid out of fund assets, are part of the fund’s
expenses, and are required by law to be disclosed in the fund
prospectus. Commission payments CS passes on to the FC from mutual fund
companies do not favor one fund or fund family over another. Comerica
Securities and our Financial Consultants may also receive additional
cash and non-cash compensation for support. Such support is used for
general business and marketing purposes such as seminars, training
conferences and entertainment.
In addition to the compensation arrangements described
above, CS seeks to collect supplemental payments from our approved
providers which are used for supporting general business expenses such
as marketing seminars, training and educational conferences, and other
marketing efforts or entertainment that our Financial Consultants may
participate in. CS may seek payments calculated as a percentage of the
fund family’s gross sales through CS, a percentage of the total of fund
assets held at CS, fixed payments or a combination of these. The
supplemental payments received for these activities vary by mutual fund
family, and are subject to change at any time. To the extent these
supplemental payments are paid by a third party, such as the fund’s
sponsor, distributor or investment advisor, and not out of fund assets
or sales charges, these amounts are not required to be included in the
fund expense tables of the prospectus.
During 2014, Comerica Securities received supplemental
payments from the following financial services companies:
- First Trust Advisors
- Lincoln Financial
It is important to note that, while we may seek to collect
these supplemental payments from mutual fund families to help pay the
expenses we incur in selling their funds, CS does not require fund
families to make such payments in order to be considered approved
providers. Additionally, our Financial Consultants are not required to
recommend any fund that provides additional compensation, nor do they
directly share in any of the marketing support fees CS receives.
Any questions you may have regarding the form of
compensation your Financial Consultant receives should be discussed
with that Financial Consultant.
Comerica Securities, Inc.
approved mutual fund providers
With so many choices of mutual funds available to today’s
investor, it can sometimes be a challenge to find the right funds to
meet their unique investment needs and objectives. Comerica Securities
and its Financial Consultants are committed to assist you in selecting
funds that will help meet your investment goals. In order to serve you,
CS has entered into selling agreements with more than 50 fund families
representing over 1,000 mutual funds. From this group of funds, we have
selected 28 fund families offering hundreds of mutual funds as our
“approved providers.” Our Financial Consultants generally recommend
funds offered by approved providers. We believe that focusing our
training and product support efforts on the approved providers allows
our Financial Consultants to gain a more comprehensive understanding of
the investment objectives and other features of these funds which, in
turn, enables them to better serve our customers. We also believe that
our selection of approved providers offers investors a wide variety of
fund and investment objective options, thereby enabling our customers
to diversify and balance their portfolios, both at the time of their
initial fund purchases and as their investment objectives and asset
allocation needs change.
The following is a list of approved providers
- Alliance Bernstein
- American Century Funds
- American Funds
- Dreyfus Premier
- Eaton Vance
- Fidelity (Advisor Accounts)
- Fidelity Advisor
- Franklin Templeton
- Goldman Sachs
- Hussman (Advisor Accounts)
- John Hancock Mutual Funds
- Lord Abbett
- MFS Investment Management
- Mainstay Funds
- Natixis (includes Loomis Sayles and other Natixis funds)
- Principal Mutual Funds
- T Rowe Price (Advisor Accounts)
- Van Eck
- Vanguard (Advisor Accounts)
For additional information on mutual fund investing, you can
visit the Securities and Exchange Commission (www.SEC.gov) or FINRA
(www.FINRA.org) Web sites. Both sites offer calculators that can help
you determine which share class may offer the fee structure with the
For additional information on a particular fund, including
applicable fees and charges, please refer to the fund's Prospectus and
Statement of Additional Information. The prospectus can be obtained
from your Financial Consultant or calling our Client Services group at
1-800-232-6983. Please read the prospectus carefully before investing.