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What is a Sales Charge?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 12 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A sales charge or commission is a fee charged by a financial agent such as a broker for services. The amount of the sales charge varies depending on which area of the financial industry the broker works in, and what kind of services are being offered. By law in many areas, financial agents must disclose the amount of sales charges up front so that people involved in a financial transaction understand the amount of any associated charges and when those charges are due. The total of a sales charge can also be limited by law.

People often discuss sales charges in the context of stockbrokers. In this case, clients may be charged what is known as a front end load, a sales charge which is incurred when shares are purchased by the broker on behalf of the client, or a back end load, also known as a deferred sales charge, when the shares are sold. In some brokerages, sales charges are kept relatively low and services are minimal, while firms which offer financial consulting and more complex services may have higher sales charges.

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The sales charge is one of the costs of the transaction which needs to be considered when making decisions about if, when, and how a transaction will take place. People sometimes forget to account for the sales charge because they are not familiar with how the charge is billed or because they simply forget, and this can skew the outcome of an analysis of a particular transaction. It is important to be familiar with all potential applicable sales charges.

When people open accounts with financial agents, they can discuss the sales charges associated with the agent's services. A reputable agent will be happy to explain the nature of the charges, along with how and when they are applied. Agents can also provide estimates of sales charges for various transactions to give their clients an idea of the amount of the sales charge. They may also be able to work out special compensation arrangements with clients who wish to negotiate.

People who are not sure about whether a particular sales charge is legal can contact government agencies which supervise activity in the financial industry. Representatives can help people find the relevant area of the law and answer questions about specific transactions. People can also report illegal activity in the financial industry to these agencies if they believe that activities are not legal or are of questionable legality.

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