A portfolio manager is evaluating different mutual fund solutions for a high-net-worth client with a long-term investment horizon. The client is sensitive to direct fees but values ongoing advice. The fund proposes a Class B units structure with a deferred sales charge (DSC) and a trailing commission of 0.75% paid to the dealer. Which of the following statements accurately describes the nature of this trailing commission?

Question: A portfolio manager is evaluating different mutual fund solutions for a high-net-worth client with a long-term investment horizon. The client is sensitive to direct fees but values ongoing advice. The fund proposes a Class B units structure with a deferred sales charge (DSC) and a trailing commission of 0.75% paid to the dealer. Which of the following statements accurately describes the nature of this trailing commission?

Answer options:

• It is a one-time fee paid by the investor at the time of purchase to the fund company. ✅ It is an annual payment made by the fund manager to the dealer for ongoing advice and service.
• It is a fixed percentage of the fund's assets deducted directly from the investor's account quarterly.
• It represents the commission earned by the fund's portfolio manager for their investment decisions.

Correct answer: It is an annual payment made by the fund manager to the dealer for ongoing advice and service.

Explanation: A trailing commission (or 'trailer fee') is an annual payment made by the mutual fund company to the dealer (and typically passed on to the advisor) as compensation for ongoing advice and service provided to the client. This fee is paid out of the management fee component of the MER.