- We provide you with the ability to invest in thousands of mutual funds directly. By making a mutual fund or mutual fund family available to you, however, we do not make any representations, endorsements, or guarantees regarding the appropriateness, quality, or suitability of any mutual fund and we make no recommendation of any kind.
- We provide, for informational purposes only, data about the various mutual funds published by independent third parties, such as Morningstar, Inc. and Markit on Demand. Fund commentary may also be provided by Morgan Stanley Investment Management Inc. (MSIM). While we believe that the data provided by these third parties is reliable, we have no independent basis to verify or contradict the accuracy or completeness of the information provided.
- You can obtain the prospectus online for mutual fund shares available for purchase through E*TRADE Securities at www.etrade.com/mutualfunds. Read the prospectus carefully before you invest in the securities of any mutual fund. The prospectus contains important information about the goals, risks, expenses, and investment strategies applicable to the fund. We do not guarantee or verify the accuracy or completeness of any mutual fund's prospectus, statement of additional information, report to shareholders, or proxy solicitation materials.
- Past performance is not an indication of future results and mutual fund investment returns and share prices will fluctuate daily. Your investment may be worth more or less than your original cost when you redeem your shares. Current performance may be lower or higher than the performance data quoted.
- An investment in any money market mutual fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investments at $1.00 per share, it is possible to lose money by investing in the fund. Money market mutual funds may be subject to liquidity fees and redemption gates if determined appropriate by the money market mutual fund's board. If a redemption gate is imposed, you will not be allowed to sell your positions and redeem shares from that money market mutual fund until the gate is lifted. If a liquidity fee is imposed, the liquidity fee will be deducted from the cash proceeds when you redeem your shares. You will receive the cash proceeds less the liquidity fee and any other applicable fees. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. Institutional accounts and trust accounts are restricted from purchasing money market mutual funds through E*TRADE Securities LLC.
- A single mutual fund usually offers different pricing arrangements or "classes" of its shares to meet investor preference and needs. Each share class represents an investment in the same mutual fund portfolio, but offers investors a choice of how, when and whether to pay for fund distribution costs. Please see the below article for a discussion of the types of share classes typically available at E*TRADE.
- Not all funds are registered for sale in all states, and particular mutual funds may not be available for sale outside the United States. By making transactions in a particular fund's shares available at E*TRADE Securities, we do not represent or otherwise guarantee that such fund's shares are registered for sale for your account.
- A fund's management may have waived all or a portion of the fees owed it by the fund. This would have an effect of increasing the fund's performance returns. If these fees were charged, your fund would be more expensive and its performance would be lower. There is no guarantee that such fees will continue to be waived in the future. For more information about the fee waivers, read the fund's prospectus carefully.
- As a mutual fund shareholder, you will likely receive taxable dividends and/or capital gains, even from a fund that purports to be "tax exempt." After paying income taxes, your after-tax investment returns will be lower than your pre-tax returns. E*TRADE Securities does not offer tax advice. We suggest you consider the impact of taxes. For further information about taxes, read the fund's prospectus and/or consult with your tax advisor.
- Indices are unmanaged and index funds generally seek to track the returns of an index (before expenses). Payment of expenses associated with an investment in an index fund, including advisory fees, are not reflected in the overall performance of a particular index. Investors are not able to directly invest in an index.
- Mutual fund transactions typically settle one (1) day after the trade date. As a result, proceeds from the sale of mutual fund shares will not be available for withdrawal until the day after settlement. In addition, full or partial sell orders entered on the settlement date of a mutual fund's purchase may not execute or may not fully execute. Please use "View Orders" to review the status of orders.
- More information about mutual funds can be found on the websites sponsored by the U.S. Securities and Exchange Commission (www.SEC.gov), the Financial Industry Regulatory Authority (www.FINRA.org), the Securities Industry and Financial Markets Association (www.sifma.org) and the Investment Company Institute (www.ICI.org).
This information is specific to mutual fund sales on our E*TRADE self-directed brokerage platform. Other available investment options feature different fees and charges, and may provide less compensation to E*TRADE.
Summarized below is important information about mutual fund share classes and the types of fees and expenses you may be required to pay depending upon the share class you select. This summary also explains how E*TRADE is compensated when you invest in mutual funds on the E*TRADE platform.
You can also visit the websites sponsored by the U.S. Securities and Exchange Commission (www.sec.gov) and the Financial Industry Regulatory Authority (www.finra.org) to obtain additional educational information about mutual funds.
Each Mutual Fund is Different
Mutual funds are securities that are offered for sale through a prospectus. Before investing in a mutual fund, you should read the fund’s prospectus and consider its investment objectives, risks, charges and expenses. You can also request a copy of the fund’s statement of additional information (“SAI”) for additional details.
All mutual funds charge investment management fees and other ongoing expenses for operating the fund that you will pay while you are invested. These fees are described in each mutual fund’s prospectus fee table. These fees will vary from fund to fund and for different share classes of the same fund. You can use prospectus fee tables to help you compare the annual expenses of different funds. Of course, in choosing a mutual fund investment, you should also consider the fund’s investment objectives and policies, and its risks, which are also described in the prospectus. Determine if they match your own goals and risk tolerance.
Mutual Fund Share Class Basics
A single mutual fund usually offers different pricing arrangements or “classes” of its shares to meet investor preference and needs. Each share class represents an investment in the same mutual fund portfolio, but offers investors a choice of how, when and whether to pay for fund distribution costs. The key distinctions among share classes are the sales charges, if any, and ongoing fees and expenses you pay in connection with your investment in the fund. It is important to understand the costs associated with various share classes because such costs decrease the return on your investment (as is the case for all investment costs).
As described below, E*TRADE offers various types of share classes. Most are not subject to a sales charge or transaction fee, but other fees and expenses apply as noted below. If you wish to purchase other types of shares, certain of which carry lower overall costs and thereby would increase your investment return, you will need to do so directly with the fund or through an account at another financial intermediary.
Underlying Fund Fees
All mutual funds charge investment management fees and other ongoing expenses for operating the fund that you will pay while you are invested. You may also be subject to other types of underlying fund fees such as, but not limited to, redemption fees. Please see a mutual fund’s prospectus for more information on which underlying fund fees apply.
Certain mutual fund share classes charge 12b-1 fees (sometimes called “trails”), which take their name from the Securities and Exchange Commission rule under which they were created. The fees are charged against mutual fund assets held in 12b-1 fee paying share classes on a continuing basis to cover marketing, distribution and/or shareholder services costs. We receive these fees as long as you continue to hold fund shares in 12b-1 fee paying share classes in your E*TRADE account. The amount of the 12b-1 fee is charged as a percentage of the fund’s total assets attributable to the share class and is listed in a mutual fund’s prospectus fee table.
Available Share Classes and Costs
E*TRADE offers clients a large selection of mutual funds including share class options that pay 12b-1 fees (typically Class A shares that waive their front-end sales charges, but are subject to ongoing 12b-1 fees) and Non-12b-1 fee paying share classes (typically share classes with no sales charges and no ongoing 12b-1 fees). Neither share class type is subject to a transaction fee for each purchase, sale and exchange in your E*TRADE account. The amount of compensation we receive and the charges and expenses incurred by you will vary depending upon the share class and whether it is subject to an ongoing 12b-1 fee.
Regardless of whether you choose a 12b-1 fee or a Non-12b-1 fee paying share class, we will receive certain types of compensation on all available share classes as discussed in the below section titled “Other Compensation.” Please note, however, that while we receive ongoing 12b-1 fees if you purchase a 12b-1 fee paying share class (typically at the annual rate of $25 per $10,000 investment), we will not receive these ongoing fees if you purchase a Non-12b-1 fee paying share class of the fund.
The fact that our available fund offerings include 12b-1 fee paying share classes represents a conflict of interest for us to promote 12b-1 fee paying share classes since we will earn more from them. Consequently, it is important to understand this distinction between the available funds so that you can determine your most economical purchase option. The amount of compensation we receive for selling you shares of the fund will be directly affected by the share class you purchase. As a general rule, share classes paying higher compensation to us will negatively impact fund performance. Additional information regarding 12b-1 and Non-12b-1 fee paying share classes is included below.
12b-1 Fee Paying Share Classes
The 12b-1 fee paying share classes offered on the E*TRADE platform are generally Class A shares where the front-end sales charge that applies to Class A shares is waived at the time of purchase. However, Class A shares typically charge an annual 0.25% (25 basis point) 12b-1 fee ($25 per $10,000 investment) that is deducted from the fund’s assets and paid as compensation to E*TRADE during each year you hold the investment. Although no transaction fee is charged on the purchase, sale or exchange of 12b-1 fee paying share classes, the 12b-1 fee increases the fund’s internal expenses thereby reducing fund performance.
Non-12b-1 Fee Paying Share Classes
No sales charges are applied to the Non-12b-1 fee paying share classes offered on the E*TRADE platform. In addition, 12b-1 fees are not assessed against the fund’s assets and transaction fees do not apply to purchases, sales and exchanges. Assuming a 12b-1 and a Non-12b-1 fee paying share class have the same management fee, the Non-12b-1 share class will almost always have lower annual expenses. As a reminder, lowering overall costs directly increases your investment return.
Choosing a Share Class
The differences in payment structure between 12b-1 and Non-12b-1 share classes should be considered when investing. Investors will generally find Non-12b-1 share classes more economical than 12b-1 paying share classes due to the assessment of 12b-1 fees (typically at the rate of $25 per $10,000 investment for Class A shares) applicable to the latter. This effect is even more pronounced over time and at higher investment levels given that 12b-1 fees are continually applied against an investor’s holdings in a fund. Since in many cases both 12b-1 and Non-12b-1 paying share classes will be available for a given fund option, investors will typically benefit from selecting Non-12b-1 paying share classes over 12b-1 paying share classes of the same fund. As noted above, if available, the Non-12b-1 paying share class will almost always have lower annual expenses which directly increases your investment return.
In addition to the 12b-1 fees applicable to the 12b-1 fee paying share classes described above, E*TRADE also receives the following types of compensation related to both 12b-1 and Non-12b-1 fee paying share classes.
Transaction Assistance Fee
E*TRADE offers investors access to mutual fund investments on a self-directed basis. In the event you instead place a trade with the assistance of the call center, you will be charged a Transaction Assistance Fee (currently $25.00, but subject to change and exceptions). This fee will be in addition to the 12b-1 fee assessed on 12b-1 fee paying share classes.
E*TRADE charges most fund families we offer a mutual fund support fee, also called a revenue-sharing payment, on client account holdings in fund families according to a tiered rate which increases along with the management fee of the fund so that lower management fee funds pay lower rates than those with higher management fees. The rate ranges from 0.01% per year ($1 per $10,000 of assets) up to a maximum of 0.10% per year ($10 per $10,000 of assets).
Revenue-sharing payments are generally paid out of the fund’s investment adviser, distributor or other fund affiliate’s revenues or profits and not from the fund’s assets. However, fund affiliate revenues or profits may in part be derived from fees earned for services provided to and paid for by the fund. E*TRADE does not receive any portion of these revenue-sharing payments through brokerage commissions generated by the fund.
Although we seek to charge all fund families the same revenue-sharing fee rate schedule, we have an incentive to promote the mutual funds whose sponsors make these payments over other funds whose sponsors do not. In aggregate, we also receive significantly more revenue-sharing from those fund families that have agreed to make these payments with the largest client fund share holdings at our firm. This fact presents a conflict of interest for us to promote funds from those fund families rather than funds from families that, in aggregate, pay us less revenue-sharing. In addition, since our revenue-sharing rates are higher for funds with higher management fees, this fact presents a conflict of interest for us to select and promote funds that have higher management fees over those with lower management fees.
Administrative Service Fees
E*TRADE and/or its affiliates receive compensation from most funds or their affiliated service providers for providing recordkeeping and related services to the funds. For these services, funds pay 0.06% per year ($6 per $10,000) on fund assets held by our clients.
Administrative fees may be viewed in part as a form of revenue-sharing if and to the extent the amounts paid by the fund exceed what the mutual fund would otherwise have paid for those services. However, they are not included in the revenue-sharing payments described above.
Although we seek to charge all fund families the same administrative service fee rates, we have an incentive to promote the mutual funds that make these payments over other funds that do not. In aggregate, we also receive significantly more administrative service fees from those fund families that have agreed to make these payments with the largest client fund share holdings at our firm. This fact presents a conflict of interest for us to promote funds from those fund families rather than funds from families that, in aggregate, pay us less administrative service fees.
Please note that some funds offer share classes that do not compensate financial intermediaries for providing administrative services, which generally make such share classes more economical than those that do. You should understand these costs because they decrease the return on your investment. If you wish to purchase a share class that does not compensate your financial intermediary for such services, you will need to do so directly with the fund or through an account at another financial intermediary that offers such shares.
Expense Payments and Data Analytics Fees
We provide fund families with opportunities to sponsor meetings and conferences and grant them access to our branch offices and representatives for educational, marketing and other promotional efforts. Some fund representatives also work closely with our branch offices and representatives to develop business strategies and plan promotional and educational events for clients and prospective clients. Some fund families or their affiliates reimburse us for certain expenses incurred in connection with these promotional efforts, client seminars and/or training programs. Fund families independently decide if and what they will spend on these activities, with some fund families agreeing to make annual dollar amount expense reimbursement commitments of up to $300,000, although actual reimbursements may be higher. Some fund families also invite our representatives to attend fund family-sponsored events. Expense payments may include meeting or conference facility rental fees and hotel, meal and travel charges.
We also provide fund families with the opportunity to purchase sales data analytics. The amount of the fees depends on the level of data and ranges up to $700,000 per year. For an additional fee, fund families may purchase supplemental data analytics on other financial product sales.
These facts present a conflict of interest for E*TRADE and our representatives to the extent they lead us to promote funds from those fund families that commit significant financial and staffing resources to promotional and educational activities and/or purchase data analytics instead of funds from fund families that do not.
Morgan Stanley, our affiliate, receives, from certain funds, compensation in the form of commissions and other fees for providing traditional brokerage services, including related research and advisory support, and for purchases and sales of securities for fund portfolios. E*TRADE’s affiliates also receive other compensation from certain funds for financial services performed for the benefit of such funds, including but not limited to providing stand-by liquidity facilities. Providing these services may give rise to a conflict of interest for E*TRADE or its affiliates to place their interests ahead of those of the funds by, for example, increasing fees or curtailing services, particularly in times of market stress.
We prohibit linking the determination of the amount of brokerage commissions and service fees charged to a fund by E*TRADE or any affiliate, to the aggregate values of our overall fund sales, client holdings of the fund or to offset the revenue-sharing, administrative fees or expense reimbursements and data analytics fees described above.
In addition, we generally seek to be reimbursed for the associated operational and/or technology costs of adding and/or maintaining mutual funds on our platform. These flat fees are paid by fund sponsors or other affiliates (and not the funds).
Availability of Affiliated Funds
Our affiliates, including Morgan Stanley Investment Management, Eaton Vance, Boston Management and Research, Calvert Research and Management, Atlanta Capital Management Company and Parametric Portfolio Associates, serve as the investment adviser to certain mutual funds that are offered through E*TRADE. These affiliated entities receive investment management fees and other fees from these funds. Therefore, E*TRADE has a conflict to promote these affiliated funds. Affiliated mutual fund companies have entered into the same administrative services and revenue-sharing arrangements with Morgan Stanley as described herein.
For More Information
For additional information on a particular fund’s payment and compensation practices, please refer to the fund’s Prospectus and Statement of Additional Information.