Mark-Ups
Municipal securities dealers that sell municipal securities generally receive compensation from your transaction. In many cases, you may not be charged a commission, but that usually does not mean that there is no cost for your transaction. Instead, in the case of most sales of municipal bonds, the dealer will obtain its compensation for a transaction through earning a profit, or "mark-up," through all or a portion of the differential between the price at which such firm purchased the security and the price at which such security was subsequently sold to the investor. (When a customer sells a municipal bond to a dealer, the firm's earnings usually result from a "mark-down," consisting of all or a portion of the differential between the price at which such firm purchased the security from the investor and the price at which such security was subsequently resold by the firm.)
Fair Pricing
MSRB rules require that the price at which a dealer purchases or sells a municipal security to an investor be fair and reasonable, taking into consideration all relevant factors. Such factors include, among other things, consideration of the fair market value of the security (which can fluctuate up or down between the time the dealer purchases and resells the security) and expenses incurred in the transaction.
Commissions
In the case of some brokered transactions in municipal bonds, and if you make an investment in a 529 college savings plan through a dealer, you may instead be charged a commission. The commission you pay must be disclosed to you. The confirmation or periodic statement that you receive from your dealer must disclose any transaction-based commissions charged by the firm. In addition, most plan disclosure documents for 529 college savings plans include information about commissions and other charges that may apply. Dealers are prohibited by MSRB rules from charging a commission that is in excess of a fair and reasonable amount, taking into consideration all relevant factors.
Other Information
Understand how much of the money you are paying to the dealer is going to work for you in your investment and how much is a cost of making the investment. Don't hesitate to ask your dealer if alternate compensation arrangements are offered for your particular investment and if volume discounts are available. Investors in 529 college savings plans should be aware that many plans offer multiple commission scales (such as front-end, back-end, asset-based or even no-load) and that, in some states, purchases may be made directly from the issuer at no or reduced commission in certain circumstances.