What do sales charges also refer to?

Sales charges, often referred to as commissions, are fees collected by brokers or financial advisors when they sell investment products, such as mutual funds or insurance policies, to clients. These charges are intended to compensate the sales personnel for their efforts in promoting and selling the financial products. The terms are interchangeable, as sales charges are directly linked to the act of selling, reflecting the commission structure in the financial services industry.

Understanding this concept is important for grasping the cost structure associated with various investment products, as they can significantly affect the overall returns an investor might expect. Performance bonuses, trustee fees, and administrative costs represent different types of charges and expenses related to investment management but do not pertain to the direct sales process and the compensation received by sales professionals.