Reallowance

“Reallowance” is what happens when our kid tries to convince us we didn’t give them their allowance yet, and should therefore give it to them again.

Actually, that’s not true. Reallowance is less about doing chores and more about selling shares, though both involve paying someone to do stuff. In reality, “reallowance” is the money paid by securities underwriters to the outside securities firms that sell the stocks they’ve underwritten. It doesn’t happen all the time, but it does happen if underwriters are trying to drum up interest around a particular stock or mutual fund.

Let’s say Food Mutant, Inc., a company that sells kits to genetically modify our own food at home, has just gone public, and we as underwriters aren’t sure how the market is going to feel about the whole thing. So we contract with an outside brokerage, promising to pay them a fee—usually a percentage of the sale—if they can sell Mutant Food shares to their clients. That fee is called a reallowance, and the hope is that the added financial incentive to brokers will push them to push the security.