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The Audit Vocabulary

The fee and disclosure terms that come up in every forensic review, defined in plain language.

Basis point

One one-hundredth of one percent (0.01%). 100 basis points equal 1%. Investment fees are often quoted in basis points.

Expense ratio

The annual cost of operating a mutual fund or ETF, expressed as a percentage of the fund's assets. It is deducted from fund assets, which reduces the return you receive.

12b-1 fee

An annual fee some mutual funds charge for marketing, distribution, and shareholder services, named for the SEC rule that permits it. It is included in the fund's expense ratio.

Front-end load

A sales charge paid when you buy shares of a fund, deducted from the amount you invest.

Back-end load (CDSC)

A contingent deferred sales charge paid when you sell fund shares. It typically declines the longer the shares are held and may reach zero after a set number of years.

Breakpoint

A purchase amount at which a mutual fund reduces its front-end sales charge. Larger investments may qualify for lower sales charges at each breakpoint.

Share class

Different versions of the same fund (such as A, C, or institutional shares) that hold the same investments but carry different fee and sales-charge structures.

Wrap fee

A single bundled fee, usually a percentage of assets, that covers advisory, brokerage, and administrative services in one program rather than charging for each separately.

Surrender charge

A fee for withdrawing money from an annuity or insurance contract before the end of its surrender period. The charge usually declines each year until it expires.

Mortality & expense (M&E) charge

An annual charge in variable annuities, taken as a percentage of account value, that compensates the insurer for the insurance risk it assumes and its expenses in the contract.

Rider

An optional provision added to an insurance or annuity contract that provides an additional benefit, usually for an additional ongoing fee.

Fiduciary

A person or firm legally obligated to act in a client's best interest when providing advice, placing the client's interests ahead of their own.

Custodian

A financial institution that holds your securities and cash for safekeeping and reports on them, separate from the person or firm advising you.

Prospectus

The legal disclosure document for a fund or security that describes its objectives, risks, fees, and expenses. Fee tables appear near the front.

Revenue sharing

Payments a fund company or its affiliates make to a brokerage firm or platform in connection with the sale or servicing of its funds — a potential conflict of interest that appears in disclosure documents.

These definitions are general, educational summaries — not a description of any specific product, account, or recommendation. Refer to a product's own prospectus or contract for its actual terms.