South Florida Arbitration & Litigation Lawyer Blog
Back-End Load:
The purpose of this post is to provide the reader with a description of the investment phrase “back-end load.” Please keep in mind that this post is being provided for educational purposes only. Consequently, it is not designed to be complete in all material respects. Thus, it is should not be relied upon as legal or investment advice. If the reader has any questions relative to this post, please contact a qualified professional.
A back-end load redemption charge is a charge that an investor pays when withdrawing money from an investment. Most common in mutual funds and annuities, the back-end load is designed to discourage withdrawals. Back-end loads typically decline for each year that a shareholder remains in a fund. For example, if the shareholder sells shares in the first year, a 5% sales charge is levied. The charge is 4% in the second year, 3% in the third year, 2% in the fourth year, 1% in the fifth year, and no fee is charged if shares are sold after the fifth year. The same concept generally applies to annuities. Interestingly, the back-end load varies from company to company and from investment to investment. Therefore, this is an element of the investment that should be carefully investigated by the investor.
A back-end load redemption charge is also referred to as a contingent deferred sales load, deferred sales charge, exit fee or redemption charge.
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