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 work with your financial advisor 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 informed decisions. Your financial advisor will provide you with a prospectus for the mutual funds you are considering. Your financial advisor will also answer your questions on how the mutual fund’s shares are priced and the compensation the financial advisor and Raymond James will receive from your investment.

This educational disclosure document is designed to provide you with a general overview of factors you should evaluate when considering an investment in a mutual fund. Generally, this educational disclosure document is divided into two parts. In the first part, you will find general information about investing in mutual funds, including information that is designed to help you understand the differences in share classes of mutual funds and how you can possibly reduce some of the transaction costs associated with investing in mutual funds. In the second part, you will find general information about how your financial advisor and Raymond James are each compensated. Each of these parts are important to you as an investor in a mutual fund – the first part gives you an idea of the costs that you will incur as a result of your investment, while the second part helps you to understand some of the factors that could conceivably affect the guidance of your financial advisor and the investment alternatives that are available to you at Raymond James.

Part I: Mutual fund investing – generally

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 investments as low as $1,000, mutual funds have become the investment of choice for many investors. Their popularity has grown significantly in recent years, and almost half of all U.S. households now own mutual funds (Source: Investment Company Institute 2004 Mutual Fund Fact Book).

It is generally advisable to select a mutual fund whose manager has extensive experience and qualifications, along with a well-defined discipline and consistent performance record. While past performance is not indicative of future results, a mutual fund’s long-term performance record and manager tenure should be factored into your selection. Your financial advisor will help you review potential mutual funds 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 managed or distributed by companies that are unaffiliated with Raymond James, as well as mutual funds that are managed and distributed by Raymond James affiliates. Raymond James financial advisors currently have access to approximately 9,000 mutual funds from more than 200 mutual fund companies. In deciding which mutual fund is right for you, you should consider many 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 expense 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.

Selecting a class of shares

On-Going Costs. All mutual funds charge management and other on-going operational fees. These on-going fees are used to pay for the mutual fund’s continuing operations which include paying the mutual fund’s portfolio manager, accounting and auditing expenses, legal expenses, marketing and advertising, and recordkeeping costs. To get an idea of the type of expenses that a particular mutual fund may incur on an on-going basis, you should refer to the “Fee Table” of the mutual fund which is found in the prospectus. Many mutual funds also assess fees commonly referred to as “12b-1 fees” or “shareholder services fees.” These fees, which are also reflected in the fee table of a mutual fund, 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 shareholders.

Funds incur other on-going costs that are not reflected in the fee table of the prospectus, but which you should consider. For instance, a fund will incur costs associated with the mutual fund’s on-going investment activities. The impact of these costs is difficult to appreciate fully because they are often difficult to quantify and they can vary immensely depending on the type of underlying investments in which a particular mutual fund may invest. To get a feel for the impact of these costs on a particular mutual fund, you should consider such factors as the size of the mutual fund (in terms of assets), previous years’ portfolio turnover rates (a ratio that measures the extent to which a mutual fund’s manager buys and sells securities in a particular period), and with respect to equity mutual funds the level of brokerage commissions that a particular mutual fund has incurred historically. Much of this information can be found in the financial statements of a mutual fund or in the mutual fund’s prospectus or Statement of Additional Information (you may request a copy of a mutual fund’s Statement of Additional Information from your financial advisor or the mutual fund company directly).

Sales Charges (“Loads”) and Class Distinctions. Many mutual funds also have sales charges, a portion of which are used to compensate broker/dealers and their financial advisors for providing financial advice and client service. Sales charges may apply when you make your investment (known as a “front-end sales charge”), or when you redeem your investment (known as a “back-end sales charge”), or in the form of an on-going charge that is assessed against assets (these on-going charges are the 12b-1 fees described above).

The mutual fund industry has developed a multiple share class structure for mutual funds which is intended to provide investors more choices for paying sales charges and service fees. Among the most common share classes that assess sales charges are Class A, Class B and Class C. While there are no standard, industry-wide 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 performance results will differ when those fees and expenses are included in a performance presentation. 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 class usually carries a front-end sales charge. This means a sales charge is deducted from your investment each time you purchase additional 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, which means that your on-going costs may be lower than the costs associated with other share classes. Many mutual funds offer “breakpoint” discounts for large investments. 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 know 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 5 to 8 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 for Class B shares will be generally higher than that of Class A shares.
  • Class C – Similar to Class B shares, Class C shares are generally characterized by 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 1 year). Class C shares also generally have higher 12b-1 fees than Class A shares, but typically have the same or comparable 12b-1 fees as Class B shares. As a result, Class C shares will almost always have a higher total operating expense ratio than Class A shares, while Class C shares have total operating expense ratios that are generally comparable to Class B shares during the B share CDSC period. However, Class C shares generally do not convert to Class A shares.

For a further explanation of mutual fund share classes and their related fees, please visit the Financial Industry Regulatory Authority’s website at www.finra.org and click on the “Investors” tab.

How to reduce 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 on Class A share sales charges based on an investor’s total dollars invested with the mutual fund group. The investment levels necessary to receive these discounts are known as “breakpoints.” Often, mutual fund companies will allow you to combine your holdings with those of your 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.

When your financial advisor executes mutual fund purchases on your behalf, he or she calculates any Class A share breakpoints to which you may be entitled based on accounts you have with Raymond James, as well as other account information you have shared. However, if your financial advisor does not have the most complete information concerning your investments, particularly any held directly with a mutual fund company or another broker dealer rather than through Raymond James, your financial advisor may not be able to identify the appropriate sales charge breakpoint on existing or future investments. Therefore, you should take a few minutes to review your records to determine what other mutual fund investments you have made either at other securities firms or directly with mutual fund companies, and regularly provide that information to your financial advisor.

Although mutual fund breakpoint policies can differ, here 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 family to reach a breakpoint on new purchases. Rules for rights of accumulation and precise breakpoints will vary from one mutual fund company to the next. Consult the prospectus and/or your financial advisor for information on how and if rights of accumulation may be applied to specific investments.
  • Letter of Intent: Investors can take advantage of rights of accumulation from the time they purchase initial shares by agreeing to invest a certain dollar amount 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 letter of intent is signed, by instating a retroactive letter of intent. However, if the amount stated for investment in the letter of intent is not invested, the mutual fund can retroactively collect the higher sales charge amount.
  • 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 families toward purchases into their mutual fund company without a sales charge. Please see a mutual fund’s prospectus or the statement of additional information (SAI) or specific policies.

It is important to note that while Class A share breakpoints are beneficial, you should not forsake prudent asset allocation among mutual funds simply to take advantage of the breakpoints. As described above, however, it may be beneficial to select mutual funds issued by the same company if you choose to purchase Class A shares in a commission-based account. As your objectives change, you can switch among the mutual funds in the mutual fund group whose objectives most closely meet your needs without incurring an additional sales charge. Staying within the same mutual fund group may be preferable, since switching from one mutual fund group to another may involve additional costs or fees. At the same time, there can be legitimate reasons to switch to a mutual fund in another mutual fund group when the one mutual fund group does not offer the type of mutual fund that you interested in or that mutual fund group’s alternatives do not appear to be as well managed.

If you do choose to switch to a mutual fund in a different mutual fund group or to another type of investment, and your account with Raymond James is commission-based, you will most likely incur a sales charge on the new investment. In those instances when a mutual fund switch to a different mutual fund or to a variable annuity will result in a new commission being charged, you and your financial advisor will be required to execute a Mutual Fund/Annuity Switch Disclosure Form. The additional sales charges, if any, will be disclosed on this form and you will be asked to acknowledge that you may have been able to switch within your existing open-end mutual fund family. You should also be aware that there may be tax consequences related to your sale, redemption or exchange of mutual fund shares. If you have questions about 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: How your financial advisor and Raymond James are compensated

In connection with your investment in the mutual funds offered by Raymond James, you should also be aware that Raymond James and your financial advisor each receive compensation. Part II of this educational disclosure document is intended to provide you with general information regarding how your financial advisor and Raymond James are compensated.

Your financial advisor

In connection with many mutual fund investments, you may be subject to the payment of a commission or load as described above. A description of commissions that are payable with respect to a particular mutual fund investment is disclosed in the prospectus of the mutual fund. A portion of the commission payment received by Raymond James is paid to your financial advisor. Regardless of commissions charged by the various mutual funds available to you at Raymond James, the compensation formula used to determine the amount of payment received by your Raymond James financial advisor is the same – this includes those mutual funds that are managed by affiliates of Raymond James. Different classes of the same mutual fund will generally have different associated on-going expenses (these on-going expenses are also described above), and your financial advisor may receive more or less compensation depending on the mutual fund share class you purchase. For instance, over time your financial advisor may receive more compensation if you invest in Class C shares of a mutual fund than if you were to invest in Class A shares of the same mutual fund as a result of Class C shares generally having higher 12b-1 fees than Class A shares. 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 of the obvious forms of compensation are directly associated with the particular type of account that you maintain with Raymond James or your particular investment. Other forms of compensation may not be as apparent since they 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 offered to you by your Raymond James financial advisor. 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. This section of this disclosure document is intended to provide an overview of the types of compensation that Raymond James receives.

Fee-Based Accounts. The type of account(s) that you have with Raymond James has associated fees and expenses that compensate Raymond James or partially offset expenses associated with the account. One type of account offered by Raymond James is a fee-based account. In a fee-based account, Raymond James assesses an annual fee as a percentage of the assets in the account – this fee is usually assessed quarterly. The fees associated with these accounts are generally used to compensate Raymond James and your financial advisor for advisory and custodial services. These asset-based fees are usually 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. Asset-based fees vary depending on asset levels, security type, style of management and/or other services provided. Raymond James offers a variety of other accounts types, such as accounts in which you pay a higher asset-based fee to Raymond James which is intended to cover your transactional expenses, as well as your advisory and custodial expenses (these accounts are generally referred to as “wrap accounts”).

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.

Processing and Handling Fee For Mutual Fund Trades. Effective during the second half of 2015, in addition to any commissions on mutual fund trades, a $5.95 processing and handling fee is charged on all commissionable accounts. This fee will be charged on both purchases and liquidations but will not apply to periodic investment plans, systematic withdrawal plans and exchanges within the same mutual fund family. This fee does not apply to ERISA plan assets.

Mutual Fund Transaction Fee. Effective during the second half of 2015, mutual fund families that do not pay Raymond James industry standard networking and service fees will have a transaction fee charged on top of any commission and processing and handling fee. For funds not subject to a mutual fund sales charge (“no-load”) in this group this fee will be $40.00 and for funds subject to a mutual fund sales charge (“load”) this fee will be $15.00 for all commission based accounts. This fee will be charged on both purchases and liquidations but will not apply to periodic investment plans, systematic withdrawal plans and exchanges within the same mutual fund family. To see what funds are subject to this fee, please visit Non-Networking and Service Partners. This fee does not apply to ERISA plan assets.

Marketing Service and Support Fees. Raymond James provides a variety of marketing and other sales support services to mutual fund companies related to their mutual funds which depends on the tier level of the mutual fund company — Premier, Preferred, or Partner. The participants in the three tiers in the Education & Marketing Support Program (E&M Program) were selected based on a number of quantitative and qualitative factors. The services provided to companies participating in the E&M Program include, but are not limited to, providing detailed mutual fund information to financial advisors, assisting mutual fund companies with strategic planning support, inclusion in the No Transaction Fee Platform, 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 are commensurate with the tier level and increase at the higher tiers. Raymond James also provides distribution support for prospectuses and promotional materials relating to their mutual funds. The marketing service and support fees come in a variety of forms, including payments which are sometimes referred to as “revenue sharing” fees and 12b-1 fees. This compensation may not be disclosed in detail in a mutual fund’s prospectus or Statement of Additional Information. The following schedule gives you an idea of the potential level of marketing support or revenue sharing fees that Raymond James may receive from a particular mutual fund group:

  • up to .14% on mutual fund share purchases (e.g., $14 for a $10,000 purchase) and/or
  • up to .30% per year on mutual fund assets

Some fund families may pay a minimum annual fee up to $75,000.

The actual amounts that Raymond James may receive will vary from one mutual fund company to another and investments in certain asset classes and/or mutual fund types may be excluded from the above formulas.

NTF Platform. Raymond James maintains a No Transaction Fee (NTF) feature for mutual fund purchases in some Raymond James programs, including Passport and IMPAC accounts. Certain mutual fund families have agreed to participate, meaning that buy transactions in open-end mutual funds from these companies will not incur a $30 charge normally charged by Raymond James. Mutual fund purchases in non-participating fund companies’ products will continue to be available and incur a $30 transaction fee for purchases.

Effective during the second half of 2015, mutual fund families that do not pay Raymond James industry standard networking and service fees will have an additional transaction fee charged on top of the current transaction fee for Passport and IMPAC accounts only. This fee will be an additional $10.00 for purchases on top of the current non-NTF fund transaction fee of $30.00. To see what funds are subject to this fee, please visit Non-Networking and Service Partners. This fee does not apply to ERISA plan assets.

In consideration of the shares being offered or made available in the Selected Account Types without the imposition of a sales, transaction or trade charge by Raymond James, Fund company affiliates agree to pay Raymond James up to ten (10) basis points annually (the “Fee”), paid quarterly (2.50 basis points per quarter), multiplied by the client assets in Selected Account Types and invested in Fund Company’s Funds as of each calendar quarter end. Some fund companies will have access to the NTF Platform without a separate charge if it is included in their Education & Marketing Support agreement.

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

ERISA Plan Assets Excluded. Raymond James specifically excludes ERISA plan assets from the calculation of NTF-eligible assets made by participating fund companies.

For a list of mutual fund companies that have agreed to participate in Raymond James’ 2015 Education and Marketing Support program, click here. Mutual fund companies that are indicated with an asterisk (*) have also agreed to participate in the No Transaction Fee (NTF) Platform.

General Promotional Activities. Marketing representatives of mutual fund companies, who are 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 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.

Networking and Omnibus Fees.
Mutual fund companies with mutual funds electronically linked or “networked” with a broker/dealer’s account system or with mutual funds available through a broker/dealer’s fee-based account programs often reimburse broker/dealers for a portion of their account servicing and administrative costs, which may include accounting, statement preparation and mailing, tax reporting and other shareholder services. Networking and omnibus accounting are services that enable data sharing between Raymond James and mutual fund providers and/or their transfer agents. Raymond James currently receives up to $20 annually in networking or omnibus fee payments per each client mutual fund position or up to .20% on total assets.

Sub-Accounting, Sub-Transfer Agency and Administrative Fees. Mutual fund companies may also pay Raymond James for the provision of sub-accounting, sub-transfer agency and/or administrative services. In arrangements providing for these fees, Raymond James will maintain an omnibus account on behalf of a particular mutual fund company and that mutual fund company will pay Raymond James to provide various services related to your account, including processing dividend payments and distributions, recording-keeping, and processing purchase and redemption orders.

For a list of companies that have agreed to pay Raymond James networking or omnibus servicing fees, click here.

For a list of fund companies that do not pay Raymond James industry standard networking and service fees, click here.

Shareholder Servicing Fees. Mutual fund companies will also pay Raymond James fees to provide shareholder liaison services to you. These shareholder services may include responding to your inquiries and providing information on your investments. Raymond James may receive these shareholder services fees in amounts not to exceed 0.25% annually of the assets invested in a particular mutual fund.

Certain Retirement Program Administration Fees. Raymond James also may receive annual fees of up to $10,000 from each mutual fund company for providing marketing and sales support services for certain corporate retirement plans.

Affiliated Funds. Raymond James makes available to its clients a variety of mutual funds advised by Eagle Asset Management (“Eagle”), a subsidiary of Raymond James. Raymond James may receive more revenue for selling these 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 Eagle.

Other Services. The subsidiary companies of Raymond James provide a wide variety of financial services to individuals, corporations 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, sponsorship of 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. The prospectus contains this and other information about an investment company. The prospectus is available 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 6,800 financial advisors serving in excess of 2.8 million client accounts in more than 2,800 locations throughout the United States, Canada and overseas. Total client assets are approximately $548 billion as of July 31, 2016. Public since 1983, the firm has been listed on the New York Stock Exchange since 1986 under the symbol RJF.