Transaction Charge - The fee charged to complete a transaction when the customer purchases or sells a security.

A commission is a fee, basically, that is paid to a broker in exchange for the broker helping you by submitting and completing your purchase orders with the seller.
There are several ways for a broker to earn a commission. It is often the case that brokers made their commissions by not only taking care of your orders, but also giving you advice on which assets to pick and how to invest in them. Therefore, many investors consider their brokers as their financial advisors as well.

Some common commissions can be minimized when investors are making a stock or ETF trade, purchasing a mutual fund, and buying an insurance policy.
  1. A stock or ETF trade commission can be a percentage, or it can be flat rate. With online trading, a flat rate is the norm; with traditional full-service brokerages, a percentage of your purchase can be the commission. As you can see, commissions can really eat into your profits, and fast. Every time you want to make a stock buy or sell , or pick up the phone and make a call to your broker, you’re being charged, and that comes directly from whatever profits you make. Even if you lose money on the trade, you still have to pay. With the financial services industry eliminating trading commissions, do you know that these "free" platforms are still able to profit from your trading activity? You must understand the hidden fee from payment for order flow (see alert section below).
  2. There are many mutual funds that use brokers to sell their shares and compensate the brokers with commissions. Funds may do this by imposing a fee on investors, known as a "sales load" (or "sales charge "), which is paid to the selling brokers. In this respect, a sales load is like a commission investors pay when they purchase a security from a broker. Although sales loads most frequently are used to compensate outside brokers that distribute fund shares, some funds that do not use outside brokers still charge sales loads. The SEC does not limit the size of sales load a fund may charge, but FINRA does not permit mutual fund sales loads to exceed 8.5%. The percentage is lower if a fund imposes other types of charges. Most funds do not charge the maximum. There are two general types of sales loads: (1) a front-end sales load investors pay when they purchase fund shares, and (2) a back-end or deferred sales load investors pay when they redeem their shares.
  3. Insurance agents' commissions can be steep, but they aren't readily apparent because they are paid by the insurer. They matter to consumers because an insurer paying a low commission generally will have more room to be generous with consumers in annual interest or other product features. For many popular types of annuities, commissions run from 5% to 7% of the invested amount, and some insurers pay 8% or more to agents. The disclosure could be a starting point for a conversation about whether a lower-commission version of the product, or a different product, might offer greater value.
Investor Alerts on Broker Commission Charges:
  • The best way to avoid stock or ETF trade commissions is to find a stock broker with the lowest commissions and the highest amount of commission-free trades in the business. After all, expensive brokers will always hurt stock and ETF investors' bottom line.
  • Understand the hidden fee from payment for order flow - When routing your order, brokers have a regulatory mandate to get "best execution", meaning as good a price as possible; however, there isn't a uniform practice to achieving this. The somewhat suspect process of selling order flow entails routing orders to market makers that provide payment for the trading activity. It's a matter for valid scrutiny as to whether this practice always gets the client the best fill possible in light of what is a rather apparent conflict of interest. A quick example of why you should care: say you go to place a 1,000-share order for stock, and this pay-for-order-flow routing gave you an execution that was just one cent more than what you could have had at an exchange without a kickback to the brokerage. You just paid $10 more for the order than you should have, greater than what an average commission would be. You're not avoiding paying what's tantamount to a commission with a lot these "free" trades; the cost is simply obfuscated.
  • No-load funds are those that you can buy and sell without paying a sales charge. Load funds carry sales charges and are typically available to those who invest with a commission-based broker or financial advisor. Whenever possible,  your overall investment costs will generally be lower if you go the no-load route.
  • Why pay surrender charges for annuities. There are NO LOAD variable annuities available that the consumer can buy direct from some carriers, and can provide pure tax deferred growth, with no surrender charges to get out.  In essence, they provide full liquidity. Leading discount brokers also offer no load variable annuities as well.
Markup is the difference between what you pay and what the dealer pays.
In the bond market, when a broker-dealer sells you securities out of its inventory, the broker-dealer acts as a principal in the transaction (that is, selling to you directly the securities it holds).  When acting in a principal capacity the broker-dealer generally will be compensated by selling the security to you at a price that is higher than the market price (the difference is called a markup), or by buying the security from you at a price that is lower than the market price (the difference is called a markdown).

You can buy virtually any type of bond or bond fund through a brokerage firm. Some firms specialize in buying and selling a specific type of bond, such as municipal bonds or junk bonds. Buying anything but Treasuries and savings bonds typically requires using a broker.

You should understand that your brokerage firm is being compensated for performing services for you. If the firm acts as agent, meaning it acts on your behalf to buy or sell a bond, you may be charged a commission. In most bond transactions, the firm acts as principal. For example, it sells you a bond that the firm already owns. When a firm sells you a bond in a principal capacity, it may increase or mark-up the price you pay over the price the firm paid to acquire the bond. The mark-up is the firm's compensation. Similarly, if you sell a bond, the firm, when acting as a principal, may offer you a price that includes a mark-down from the price that it believes it can sell the bond to another dealer or another buyer. You should understand that the firm very likely has charged you a fee for its transaction services.

If the firm acts as agent, the fee will be transparent to you. The firm must disclose the amount of the commission you were charged in the confirmation of the transaction. However, if the firm acts as principal, it is not required to disclose to you on the confirmation how much of the total price you paid to buy the security was the firm's mark-up; it is only required to disclose the price at which it sold the bond to you and the yield. Similarly, if you sell a security to a firm and it acts as principal, the firm is not required to tell you how much of a mark-down the firm incorporated in determining the price the firm would pay you. It is also possible to buy and sell bonds through an online or discount broker, which often charges a flat fee to buy or sell a bond.
Investor Alerts on Markup and Spread Cost:
  • If you invest in individual bonds, call various brokers and ask what their pricing structure is. In addition to any flat fee that is charged, ask how markups and markdowns are calculated.
  • Bond trades are a mystery to many investors. Most of investors do not know how much fees charged in their broker-adjusted bond prices. Many investors falsely believe that they receive the best pricing from their brokers but failed realize how much they may have overpaid when purchasing or underpaid when selling.
  • Whereas commissions for stock trades are clearly posted on brokerage websites, bond commissions are not. Rather, brokerage firms mark up or mark down bond prices. Markups and markdowns adjust the bond prices to reflect the firm’s commission.
A surrender fee is a fee paid by an annuity investor to withdraw some or all of his or her principal before the annuity's surrender period has expired.
Getting your money out of an individual retirement account can be costly. Whether you’ve retired early and are ready to access your money, or want to change investment vehicle, or have some pressing reason for surrendering your IRA, you may be subject to penalties. Many investment companies include charges or penalties for surrender on their IRAs, and the Internal Revenue Service may levy tax penalties as well.

Early Withdraw Penalties
Some IRA plan administrators, especially insurance companies that offer annuities structured as IRAs, make forecasts assuming that plan participants will keep their investments in the plan for a number of years. To secure the long-term needs of the plan, some administrators charge surrender penalties based on the length of time invested.

Tax Penalties
When you surrender an IRA, you must pay taxes on the funds you receive. There are ways to avoid paying taxes on an IRA you surrender if you are putting the funds into a different qualified account, such as another IRA. Additionally, if you surrender your IRA and you are younger than 59 1/2, then your withdrawal will be subject to a 10-percent tax penalty by the IRS.

Annuity Surrender Charges
If you take money out of an annuity inside IRA, there may be a penalty called a surrender fee or a withdrawal charge. This fee is higher if you withdraw funds within the first years of an annuity contract. The penalty, however, drops gradually each year. Since immediate annuities are purchased to provide income, they usually can’t be “surrendered” and will therefore not be subjected to a fee. The purpose of the fee is to allow the insurer enough time to recover its expenses, largely commissions, in setting up the annuity contract. It also serves to discourage annuity buyers from using deferred annuities as short-term investments for quick cash.
Investor Alerts on IRA Surrender Penalty Charges:
  • Some annuity contracts may permit you to pull out a portion of the funds annually, usually up to 10 percent without a surrender charge. If this option is important to you, ask your insurance agent or company representative about this before deciding to invest your money in a specific annuity.
  • A retirement plan can distribute benefits only when certain events occur. Your summary plan description should clearly state when a distribution can be made. The plan document and summary description must also state whether the plan allows hardship distributions, early withdrawals or loans from your plan account.
  • Unless you elect otherwise, benefits under a qualified plan must begin within 60 days after the close of the latest plan year in which you: turn 65 (or the plan’s normal retirement age, if earlier); complete 10 years of plan participation; or terminate service with the employer.