Mutual Fund Investing at Raymond James 

Introduction

Raymond James[1] offers clients a wide range of investment alternatives and services, including a variety of mutual funds. Deciding which mutual funds to invest in can be complex. It is important for you to evaluate how a particular mutual fund fits your individual needs and objectives. An important aspect of the mutual fund screening and selection process is to read the mutual fund’s prospectus carefully before investing. Each prospectus contains important information that will help you make an informed decision about an investment in a mutual fund. Raymond James financial advisors are able to provide you with a prospectus for the mutual fund(s) you may be evaluating. Raymond James financial advisors are also able to answer your questions regarding the pricing of the mutual fund’s shares and the compensation Raymond James (and your financial advisor) receives in connection with the investment.

This educational disclosure document is divided into two parts and is designed to provide you with a general summary of important factors you might consider when evaluating an investment in a mutual fund. Part I contains general information about investing in mutual funds, including information that is designed to help you understand the differences in share classes of mutual funds, the costs that you will incur in connection with an investment in a mutual fund and how you may be able to reduce some of the transaction costs. Part II contains general information about the compensation Raymond James (and your financial advisor) receives in connection with mutual fund transactions.

Part I: Mutual fund investing

The popularity of mutual funds results from features such as professional management, diversification, daily pricing and redemption, and ease of purchase, among other investor benefits. Because many mutual funds have minimum investment amounts as low as $250 and provide diversification, they have become the investment of choice for many investors.

Some important factors that an investor may consider in evaluating a mutual fund are the fund’s investment manager’s reputation and the specific portfolio manager’s experience and qualifications. While past performance is not indicative of future results, a mutual fund’s long-term performance record and portfolio manager tenure may also be important factors in selecting a mutual fund as an investment option. Raymond James financial advisors are able to help you review potential mutual fund choices in light of your investment objectives and risk tolerance.

As a client of Raymond James, you are able to invest in a wide range of investment products, including many different mutual funds that are sponsored or managed by companies that are unaffiliated with Raymond James, as well as, in some cases, mutual funds that are sponsored or managed by Raymond James affiliates. Raymond James makes available approximately 5,500 mutual funds from more than 350 mutual fund companies. In deciding which mutual fund is appropriate for you, you might consider several different factors, including a mutual fund’s investment objective, investment strategies and risks, the background of the investment adviser who is responsible for the management of the mutual fund’s assets, and the fees and expenses associated with an investment in a particular mutual fund. The remaining information in Part I of this educational disclosure document is intended to provide you with a general overview of the costs associated with an investment in a mutual fund.

Overview of Mutual Fund Fees and Expenses

Ongoing Costs. All mutual funds charge management and other ongoing operational fees. These ongoing fees are typically used to pay for the mutual fund’s continuing operations, which include, among other things, paying the mutual fund’s investment manager, accounting and auditing expenses, legal expenses, and marketing, advertising, and recordkeeping costs. For information on the types of expenses that a particular mutual fund incurs on an ongoing basis, you should refer to the “Fee Table” in the prospectus of the particular mutual fund. Ongoing costs of a mutual fund may also include fees commonly referred to as “12b-1 fees” or “shareholder services fees.” These fees, which are also reflected in the Fee Table, are generally used to finance activities intended primarily to result in the sale of additional shares of the mutual fund or to provide continuing shareholder services to existing mutual fund shareholders.

Mutual funds also incur other ongoing costs that are not reflected in the Fee Table, but which you might also consider. For instance, a fund incurs costs associated with the mutual fund’s ongoing investment activities. The impact of these costs is complex because these costs are often difficult to quantify and can vary depending on the type of underlying investments in which a particular mutual fund may invest. To understand the impact of these costs on a particular mutual fund, you might consider such factors as the size of the mutual fund (in terms of assets under management), previous years’ portfolio turnover rates (a ratio that measures the extent to which a mutual fund’s portfolio manager buys and sells securities within a particular period of time), and the level of trading costs that a particular mutual fund has incurred historically. Much of this information can be found in the financial statements of a mutual fund, in the mutual fund’s prospectus, or in the Statement of Additional Information (“SAI”) of the particular mutual fund (you may request a copy of a mutual fund’s SAI from your financial advisor or the mutual fund company directly).

Sales Charges (“Loads”) and Class Distinctions. Many mutual fund shares also contain sales charges, a portion of which is used to compensate broker/dealers and their financial advisors for providing financial advice and client service. An investor will incur any applicable sales charges, which are detailed in the prospectus, and generally take one of the following forms: at the time an investor makes an investment (known as a “front-end sales charge”), when an investor redeems their investment (known as a “back-end sales charge”), or in the form of an ongoing level charge that is assessed against assets (12b-1 and other associated fees).

Selecting a class of shares

The mutual fund industry has developed a multiple share class structure for mutual funds, which provides investors choices for paying sales charges and service fees.  Though there are several types of share classes, among the most common share classes available to retail investors are Class A, Class B, and Class C. While there are no standard, industrywide definitions of these classes (each mutual fund defines its share classes in its prospectus), some of the typical differences are discussed below. You should note that each class generally has different fees and expenses, and therefore fund performance results will differ as those fees and expenses reduce performance across share classes. You should also note that the length of time you expect to hold your investment in a mutual fund may play an important role in determining which share class is most appropriate for you, and you should discuss your expectations in this regard with your financial advisor.

  • Class A This share class usually carries a front-end sales charge. This means that a sales charge is deducted from your investment each time you purchase shares. Typically, Class A shares have a lower expense ratio (total annual fund operating expenses as a percentage of the mutual fund’s assets) compared to the other share classes of the same mutual fund offered to similar account types. This means that ongoing costs may be lower than the ongoing costs associated with other share classes of the same mutual fund. Many mutual funds offer “breakpoint” discounts for large investments in Class A shares. These breakpoints are described in the mutual fund’s prospectus.
  • Class B – Rather than imposing a sales charge at the time of initial investment as with Class A shares, Class B shares are characterized by a back-end or contingent deferred sales charges (also known as a “CDSC”), which means that you may pay a sales charge when you redeem (sell) mutual fund shares. The amount of the CDSC as a percentage of your investment normally declines over time and eventually is eliminated the longer you hold your shares (the period of decline may last anywhere from five to eight years depending on the particular mutual fund). Once the CDSC is eliminated, Class B shares usually convert to Class A shares. Until this conversion takes place, Class B shares will generally have higher 12b-1 fees than Class A shares and, as a result, the overall expense ratio (the ongoing asset-based fees) for Class B shares will be generally higher than that of Class A shares.
  • Class C – Class C shares are generally characterized by a level asset-based distribution fee, and, similar to a Class B share, a CDSC. However, unlike Class B shares, the possibility of incurring a CDSC if you sell your shares generally goes away after a short period of time (usually one year). Class C shares may have the same 12b-1 fees as Class A and B shares, but the level asset-based sales charge will increase the ongoing asset-based fees of the fund. As a result, Class C shares will almost always have a higher total operating expense ratio than Class A shares.
    • Share Class Conversion Policy. Effective as of March 1, 2019, Raymond James will automatically convert any portion of your Class C share investment held for longer than 8 years from date of purchase to Class A shares (or another appropriate share class) at net asset value with no additional cost to you.  As a result, you will only be charged the services fees associated with Class A shares (or another appropriate share class) for the converted shares.  Beginning in April 2019, ongoing conversions of Class C shares held for longer than 8 years will take place on a monthly basis.
  • Other share classesShare classes meant for fee-based or advisory account types can take a number of forms, such as Institutional or P shares, and do not generally contain sales loads or 12b-1 fees. In addition, some shareholders may qualify to invest in share classes that are intended for specific types of investors, such as retirement plans.

Further explanation of mutual fund share classes and their related fees is available on the Financial Industry Regulatory Authority’s website at www.finra.org (click on the “Investors” tab).

Managing sales charges

Discounts and reduced sales charges. While it may make sense to own mutual funds from different mutual fund companies, it may increase your total ownership costs. Fund companies often offer discounts or reduced sales charges on Class A shares based on an investor’s total dollars invested with the mutual fund group/family. The investment levels necessary to receive these discounts are known as “breakpoints.” Often, mutual fund companies allow investors to combine their holdings with those of their immediate family members to reach these breakpoints. The prospectus of every mutual fund describes its breakpoint policies, including how investors can reach breakpoints, how the mutual fund group defines which family members qualify as “related,” and which mutual funds and account types qualify for breakpoints.

Breakpoint calculations are dependent on the information that you provide to your financial advisor. You should provide your financial advisor with information concerning your investments, particularly any mutual fund investments that you hold directly with a mutual fund company or with a broker/dealer other than Raymond James.

Mutual fund breakpoint policies can differ, are governed by prospectus, and vary by broker-dealer. Below are some common ways you can receive the benefits of breakpoints.

  • Rights of Accumulation: “Rights of accumulation” allow you to combine your mutual fund purchase with your existing investment in the mutual fund group/family to reach a breakpoint on new purchases providing for a lower front-end sales charge based on the amount invested. Rules for rights of accumulation and precise breakpoints vary among mutual fund groups/families. Consult the mutual fund prospectus and/or your financial advisor for information on whether and how rights of accumulation may be applied to specific investments.
  • Letter of Intent: Investors can take advantage of rights of accumulation at the time of purchase by agreeing to invest a certain dollar amount in a mutual fund or mutual fund family over a specified period of time.  In most instances, this requires signing a Letter of Intent (LOI). In addition, many mutual fund companies also permit investors to include purchases completed before the LOI is signed, by instating a retroactive LOI. However, if the amount stated for investment in the LOI is not invested, the mutual fund can retroactively charge an investor the full front-end sales charge applicable to the amount invested.
  • Net Asset Value (NAV) Transfers and Buybacks: After an investor redeems mutual fund shares, some mutual fund companies will allow investors to buy back into certain mutual funds within a certain time frame without incurring a Class A share sales charge. They may even allow investors to apply past redemptions of mutual funds from other mutual fund groups/families toward purchases into their mutual fund company without a sales charge.

Waivers.  As explained in this disclosure, Raymond James may be compensated for its services by fund families in different arrangements. Raymond James has negotiated with fund families for their waiver of front-end sales charges on Class A shares when shares are purchased: (i) through a Raymond James investment advisory account, (ii) as part of a reinvestment of capital gains or dividends of the same fund (but not another fund of the same fund family) (“Rights of Reinstatement”), (iii) using proceeds from redemptions from funds of the same fund family provided the new purchase transactions occurs within 90 days of the redemption, in the same account and the purchase would otherwise be subject to a front-end sales charge, and (iv) by Raymond James associates and their families.  Raymond James has also negotiated with fund families for the waiver of the CDSC on Class A and Class C shares with respect to transactions occurring in the following circumstances: (i) following the death or disability of a shareholder, (ii) as part of a systematic withdrawal plan, (iii) as part of a return of an excess contribution to an individual retirement account; (iv) as part of a required minimum withdrawal of a shareholder from an individual retirement account; (v) as part of a redemption initiated by Raymond James to cover its fees due and owing; and (vi) shares acquired under Rights of Reinstatement.

Please see a mutual fund’s prospectus or the SAI of the particular mutual fund for specific policies regarding Rights of Accumulation, LOI, NAV Transfers and Buybacks, and any other sales charge discounts or waivers.

It is important to note that while Class A share breakpoints provide reduced sales charges, they are only one cost-based factor that an investor might consider with respect to mutual fund investments. Breakpoints serve to incentivize purchases of mutual funds issued by the same company if you purchase Class A shares in a commission-based account. Another advantage of purchasing shares within one fund family is that, as your financial objectives change, you may be able to exchange funds among the mutual funds within the particular mutual fund group without incurring an additional sales charge.

Exchanges among mutual fund groups/families and changes in types of investments in Raymond James commission-based accounts are likely to incur sales charges on the new investment. In some instances, you may be required to execute additional forms. There may be tax consequences related to your sale, redemption, or exchange of mutual fund shares. To understand the possible tax consequences of a sale, redemption, or exchange of your mutual fund shares, you should consult your tax advisor prior to making any such investment decision.

Part II: Raymond James’ and your financial advisor’s compensation

Part II of this educational disclosure document provides general information regarding the compensation that Raymond James and your financial advisor receive in connection with client investments in the mutual funds available through Raymond James. Depending on the type of account through which an investment is made (i.e., a brokerage account or an advisory account), mutual fund investments may be subject to different fees. Both Raymond James and your financial advisor generally share in a mutual fund’s sales charges, distribution and service fees, and asset-based advisory fees charged on mutual funds held in your account.

Your financial advisor

Brokerage Accounts. Raymond James financial advisors will receive a sales charge or “load” in connection with purchases made in “commission” brokerage accounts. A description of sales charges or “loads” that are payable with respect to a particular mutual fund investment is disclosed in the prospectus of the mutual fund. Regardless of the sales charge paid by the various mutual funds available to you at Raymond James, the compensation formula used to determine the percentage of gross compensation received by your Raymond James financial advisor is the same – this includes those mutual funds that are managed by affiliates of Raymond James. Different share classes of the same mutual fund will generally have different associated ongoing expenses (as described above), and your financial advisor could receive more or less compensation depending on the mutual fund share class you purchase and the period of time for which you hold the investment.  Through implementation of its Share Class Conversion Policy (described above), Raymond James is limiting the compensation paid to it for distribution of Class C shares held for longer than 8 years to the services fees associated with Class A shares (or another appropriate share class) for the converted shares. 

Fee-Based Accounts. In a fee-based account, investors are assessed an annual fee as a percentage of the assets in the account (“asset-based fees”), these assets may include mutual funds. This fee is typically assessed quarterly. Your financial advisor receives a portion of this fee. These asset-based fees are generally separate and distinct from the expenses Raymond James charges you as a result of the transactions that occur in your account. Asset-based fees are also separate and distinct from the fees charged by the mutual funds that you may hold in your account – although the front-end and back-end sales charges of mutual funds are often waived for accounts with asset-based fees. If a mutual fund is held in an advisory account, the value of that mutual fund position is generally included for purposes of calculating the asset-based fee applicable to the advisory account. More information on Raymond James fee-based accounts can be found here (please see the Raymond James & Associates, Inc. Form ADV Part 2A and Wrap Fee Program Brochure, or the Raymond James Financial Services Advisors, Inc. Form ADV Part 2A and Wrap Fee Program Brochure, as applicable).

When considering what type of account is right for you, you should carefully think about the projected expenses of the particular type of account given your financial situation and preferred relationship with your financial advisor. Specifically, you should consider and discuss with your financial advisor such factors as the amount of assets you intend to have in the account, the extent to which you want to exercise control over the account, and the number of transactions you anticipate during a period of time.

Raymond James does not provide cash or non-cash compensation incentives to financial advisors for selling certain mutual funds or share classes.

Raymond James

Raymond James receives compensation from a variety of sources and for a variety of services. Some forms of compensation are directly associated with (i) the particular type of account that you maintain with Raymond James or (ii) the particular investments. Other forms of compensation that Raymond James receives do not directly affect the amount that you pay or that you are charged. These other forms of compensation include payments from the companies that sponsor, manage, and/or promote the sale of certain mutual funds available to you through Raymond James. The payments from these mutual fund companies to Raymond James are intended to cover a variety of expenses, including expenses associated with marketing mutual funds to new investors, educating Raymond James financial advisors, and expenses associated with servicing existing client accounts. The payments are subject to modification, termination, or suspension by the payer.

You should be aware that only those mutual fund companies with which Raymond James has a selling agreement will be available for purchase from Raymond James, and you are generally limited to those fund companies that provide Raymond James with compensation, including but not limited to education and marketing support, networking, and/or omnibus fees (see further description below). As a result, not all mutual funds available to the investing public will be available for investment at Raymond James, and you should not assume that share classes with the lowest available expense ratio are available. When evaluating Raymond James’ compensation, you should factor in both direct and indirect compensation received by Raymond James for the sale of the mutual fund shares in which you invest. This section of this disclosure document is intended to provide an overview of the types of compensation that Raymond James receives in connection with mutual fund investments.

Processing & Handling Fee for Mutual Fund Trades. In addition to any sales charges or loads on mutual fund trades, a $5.95 processing & handling fee is charged by Raymond James on all commissionable brokerage accounts. This fee is charged by Raymond James directly to investors on both purchases and liquidations but is not charged in connection with transactions through periodic investment plans, systematic withdrawal plans, or exchanges within the same mutual fund family. This fee does not apply with respect to mutual funds that are assets held by an employer-sponsored retirement plan subject to the Employee Retirement Income Security Act (“ERISA plan assets”).   

Mutual Fund Transaction Fee in Commission Brokerage Accounts. Transactions with respect to mutual funds of those mutual fund families that do not pay Raymond James networking and service fees have a transaction fee charged directly to investors, separate from, and in addition to, any sales charges or “load” and processing & handling fees. For funds in this group that are not subject to a mutual fund sales charge (“no-load”), this fee is $40, and for funds in this group that are subject to a mutual fund sales charge or “load”, this fee is $15. This fee is charged directly to investors on both purchases and liquidations but is not charged in connection with transactions through periodic investment plans, systematic withdrawal plans, or exchanges within the same mutual fund family. To see which fund families are subject to this fee, please visit Non-Networking and Service Partners. This fee does not apply to ERISA plan assets.

Education & Marketing Support Fees. Raymond James provides a variety of marketing and other sales support services to mutual fund companies related to their funds. The services that Raymond James provides depend on the level of the mutual fund company’s participation in Raymond James’ Education & Marketing Support Program (“E&M Program”). The E&M Program has three tiers – Premier, Preferred, or Partner – which correspond to different levels of compensation that the mutual fund company provides to Raymond James for its related services. The services provided to companies participating in the E&M Program include, but are not limited to, providing detailed fund information to financial advisors, assisting mutual fund companies with strategic planning support, providing the option to be included in the No Transaction Fee (“NTF”) Program, and providing opportunities for assisting with professional development workshops, study groups, and other educational events and conferences. The level of support and types of services provided by Raymond James are commensurate with the tier level and increase at the higher tiers. That is, Premier mutual fund companies receive the greatest quantity of services, followed by Preferred and Partner, respectively. Raymond James also provides distribution support for prospectuses and promotional materials relating to mutual funds that participate in the E&M Program. The structure of payments to participate in the E&M Program generally varies among mutual fund companies – a percentage of assets under management, a flat dollar fee, or some combination thereof – but the potential level of marketing support fees (also known as revenue sharing fees) that Raymond James receives from a particular mutual fund group/family will not exceed 0.30% (30 basis points) per year on mutual fund assets held through Raymond James.  These payments are generally not disclosed in detail in a particular mutual fund’s prospectus or SAI.

Certain fund families pay Raymond James a minimum annual fee up to $75,000 to participate in its E&M Program.

In certain circumstances, Raymond James will choose to make share classes that pay 12b-1 fees or level distribution fees available in investment advisory programs if the fund family participates in the E&M Program. Raymond James may then receive marketing and education support payments from the fund family for its services, without increasing costs to you.

The actual amounts that Raymond James receives will vary from one mutual fund family to another, and investments in certain asset classes, share classes, mutual fund types, and/or account types may be excluded from the E&M Program. For instance, the E&M Program payments do not apply to ERISA plan assets and certain fee-based retirement accounts.

NTF Program. Raymond James maintains a no transaction fee feature for certain mutual fund purchases in some Raymond James investment advisory programs, including Passport and IMPAC. Certain mutual fund families have agreed to participate in the NTF Program, meaning that your purchase transactions of funds from these companies will not incur the $15 charge normally charged to you by Raymond James because the mutual fund family has agreed to reimburse Raymond James directly for this $15 transaction fee. Purchases of mutual funds of those mutual fund companies that do not participate in the NTF Program will continue to be available and incur a $15 transaction fee charged directly to you. This fee does not apply to ERISA plan assets.

Mutual fund families that do not pay Raymond James networking and service fees will have an additional transaction fee charged, separate and in addition to the current transaction fee, for taxable Passport and IMPAC accounts only. This additional transaction fee will be $25 for purchases, separate and in addition to the current non-NTF fund transaction fee of $15, for a total fee of $40 in taxable accounts. To see which fund families are subject to this fee, please visit Non-Networking and Service Partners. This fee does not apply to ERISA plan assets.

A list of mutual fund affiliate companies that have agreed to pay Raymond James to participate in the NTF Program may be accessed here.

For a list of mutual fund companies that have agreed to participate in Raymond James’ 2018 Education & Marketing Support Program, click here.

Shareholder Servicing Fees. Certain mutual fund companies also pay Raymond James fees to provide shareholder liaison services to investors. These fees are classified as shareholding servicing fees and generally include responding to investor inquiries and providing information on mutual fund investments. Raymond James receives these shareholder services fees from certain mutual funds in amounts not to exceed 0.25% annually of the assets invested in a particular mutual fund.

Education Fees – Retirement Program. Raymond James also receives annual fees of up to $25,000 from mutual fund companies for providing education, marketing, and sales support services for certain employer-sponsored retirement plans.

Affiliated Funds. Raymond James makes available to its clients a variety of mutual funds advised by Carillon Tower Advisers (“CTA”), a subsidiary of Raymond James Financial, Inc. Raymond James generally receives additional revenue in connection with the sale of CTA mutual funds because it receives compensation for providing these affiliated mutual funds with investment advisory, administrative, transfer agency, distribution, and/or other services that Raymond James may not provide to unaffiliated mutual funds. However, as noted above, Raymond James financial advisors and branch managers do not receive additional compensation or other cash or non-cash incentives for recommending mutual funds (or any particular class thereof) advised by CTA.

General Promotional Activities. Marketing representatives of mutual fund companies, often referred to as “wholesalers,” work with Raymond James financial advisors and their branch office managers to promote their mutual funds. Consistent with applicable laws and regulations, these mutual fund companies may pay for or provide training and education programs for Raymond James financial advisors and their existing and prospective clients. Mutual fund companies may also pay Raymond James, directly or indirectly, to offset expenses incurred for due diligence meetings, conferences, client relationship building events, occasional recreational activities, and other events or activities that are intended to result in the promotion of their mutual funds.

Other Services. The subsidiary companies of Raymond James Financial, Inc. provide a wide variety of financial services to individuals, corporations, employer-sponsored retirement plans and municipalities. For these services, Raymond James receives compensation. As a result, Raymond James can be expected to pursue additional business opportunities with companies whose mutual funds Raymond James makes available to its financial advisors and their clients. Consistent with industry regulations, these services could include (but are not limited to) banking and lending services, consulting or management services to deferred compensation and retirement plans, investment banking, securities research, institutional trading services, investment advisory services, and effecting portfolio securities transactions. Raymond James professionals who offer mutual funds to the individual investor clients of Raymond James may introduce mutual fund company officials to other services that Raymond James provides.

Investors should carefully consider the investment objectives, risks, charges, and expenses of any investment company before investing. Each mutual fund prospectus contains this and other information about an investment company. Mutual fund prospectuses are available from the mutual fund company and from your financial advisor and should be read carefully before investing.

[1] Raymond James Financial, Inc. (NYSE: RJF) is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. The company has approximately 7,600 financial advisors serving in excess of 3 million client accounts in more than 3,000 locations throughout the United States, Canada and overseas. Total client assets are approximately $750 billion as of June 30, 2018. Public since 1983, the firm has been listed on the New York Stock Exchange since 1986 under the symbol RJF.