Investment Fees. The Characteristics of Investment Fees

Investment fees are the costs charged by a broker or other financial institution for providing services to you. These may include commissions, transaction and account maintenance charges, custodial fees, fund management expenses, etc.


The amount of these fees will vary depending on your investment objectives, time horizon, risk tolerance, and liquidity needs. There is no guarantee that any particular asset allocation strategy will be free from investment fees. All investments involve risks, including possible loss of principal. Past performance does not indicate future results. 

Characteristics of investment fees

Investment Fees

The following table shows typical types of investment fees:

* Transaction fee – A charge levied when buying or selling securities. This can range between 0% and 1%. It also includes brokerage accounts where there is an additional cost per trade. For example, if you buy $10,000 worth of stocks in one day, it would cost about $100 as a transaction fee. However, this varies based on how much money you have invested with them. If you invest more than 1 million dollars, they might waive their commission altogether.

* Account Maintenance Fee – An annual fee paid directly into your bank account each year. AMFs typically run around $50-$75 annually. They cover things like record keeping, tax reporting, portfolio monitoring, etc. Some brokers offer discounts for paying upfront instead of monthly.

 * Custodian Fee – Also known as "Custody" or "Trustee,” this covers the service provided by a third party who holds assets on behalf of investors. Typically, custodians provide safekeeping, security, insurance, accounting, legal advice, etc. In some cases, the custodian offers all three functions at once. You pay a percentage of the value of the underlying funds held in custody.


* Fund Management Expense - FMEs are generally used to describe the expense incurred by mutual funds themselves. Mutual funds usually incur two kinds of FMEs: operating expenses and distribution/management fees. Operating expenses are those associated with running the business, such as salaries, rent, utilities, marketing, advertising, etc. Distribution/Management fees are those related to managing the actual shares of stock being traded. Most mutual funds use both methods to generate revenue.

 * Redemption Fee – When redeeming shares of a mutual fund, you'll often get hit with a redemption fee. This is because most mutual funds don't want to sell off their holdings too quickly. Instead, they prefer to let people slowly withdraw their capital over several years. So, when someone wants to cash out, they're forced to pay a hefty price tag. Redemptions fees tend to average anywhere from.25%-2% but can go up to 5- 6%+.

 * Sales Load – Another type of fee which applies only to certain types of accounts. Sales loads are sales taxes imposed on purchases made within a specific state. Depending on what state you live in, you could end up paying anywhere from 3% to 6%+ on top of whatever else you'd typically pay.

* 12b-1 Fee – This refers to the SEC's Regulation D Rule 12b-1. The rule requires that any company offering publicly traded equity securities register its offerings under Section 4 of the Securities Act of 1933. Companies under this section must file periodic reports disclosing information regarding the issuer, including financial statements, management compensation plans, and other relevant data. These filings are available through EDGAR, the Electronic Data Gathering Analysis Retrieval System maintained by the U.S. Securities & Exchange Commission.

* Transfer Agent Fees – Similar to custodial fees, transfer agent fees refer to the services performed by companies that handle shareholder transactions. There are different categories of transfer agents depending on whether they specialize in domestic or international trading. Domestic transfer agents include Depository Trust Company, National Stock Clearing Corporation, NYSE Arca, NASDAQ OMX BX, Nasdaq Global Market LLC, etc. International transfer agents include Deutsche Boerse AG, LCH. Clearnet Limited, London Stock Exchange Group plc., and others.

*Taxes-: Taxes are another significant cost factor for investing. If your investments earn taxable income, you will be subject to federal, state, local, and foreign tax rates. You should also consider how much money you plan to spend each year on taxes before making an investment decision. For example, if you expect to have $10,000 per month left after all bills are paid, it may not make sense to invest more than 10%.


*Transaction Costs- Transaction costs are essentially the fees charged by brokers who execute trades on behalf of investors. They vary widely based on where you trade, the size of your account, and the number of stocks you own. Some transaction costs are fixed, while others fluctuate according to market conditions. In general, larger orders require higher commission charges.

*Brokerage Firm Selection Criteria- Brokers typically offer three main criteria for choosing them: 

1) Minimum deposit requirements

2) Customer support 

3) Commissions. Minimum deposits range between $5K-$50K+, although some firms charge as little as $500. Customer service varies significantly among brokerage firms, so check online reviews and ask friends about their experiences at various brokerages. Finally, commissions usually fall into one of two categories: flat rate or tiered. Tiered pricing means that the lower the share class, the less expensive the commission. A flat rate is a single fee regardless of the amount invested.

*Minimum Investment Requirements- Most brokerages set minimums for opening accounts with them. Generally speaking, these amounts start around $2K and go up from there. However, many firms waive initial minimums altogether. Also, keep in mind that most brokers do not allow customers to open multiple accounts simultaneously. So if you already have an account elsewhere, you'll need to close out your old account first.

 *Account Types- Account types can help determine which type of investor you are. Traditional IRA accounts are designed for retirement savings. Roth IRAs provide tax benefits but no upfront cash contributions. A rollover allows you to move funds from traditional to Roth without having to pay additional taxes. Other options include margin accounts, self-directed IRAs, and managed accounts.

 Margin accounts let you borrow against securities held within your portfolio. Self-directed IRAs give you complete control over your assets. Managed accounts that combined aspects of both traditional and index mutual fund portfolios.

*Traditional IRA Accounts-These accounts are available through banks, credit unions, insurance companies, and other financial institutions. The IRS requires individuals to contribute 6% of their annual gross wages and applicable payroll deductions. This contribution must be made directly to the custodian bank holding your IRA. Once deposited, this money becomes part of your overall asset base. Your earnings grow tax-free until withdrawn during retirement.

*Roth IRA Accounts- Like traditional IRAs, Roth IRAs work like 401 plans, except they don't deduct employee contributions from employees' paychecks. Instead, employers match those contributions dollar for dollar.

Frequently Asked Questions about investment fees.

 How much does it cost?

The average investment advisory firm will take anywhere from 0%-3% per year off your returns. That's right -- even though we're talking about investing here, the typical advisor takes more than ten times what he earns! If you want to know how much you should expect to spend annually on investments, use our calculator below. It helps estimate how much you could save each month by switching advisors.

What kind of advice do I get?

 Investing isn't just about picking stocks and bonds. You also need expert guidance when making decisions regarding risk tolerance, diversification, rebalancing, etc. Advisors who specialize in specific areas may be able to provide better insight into specific sectors. Some advisors focus exclusively on ETFs, while others only invest in individual stocks. Others offer a combination of stock selection and bond allocation strategies.

Is my money safe?

Yes. The FDIC or NCUA insures all brokerage accounts. In addition, all major brokerage houses maintain custody services at various locations throughout the country. Custody is where your holdings reside after being transferred from one brokerage house to another.

*FDIC Insurance-Provides protection for deposits up to $250k per institution

Bottom Line

If you've been paying too many fees, now might be the time to switch. We'll show you exactly how to find an affordable adviser that fits your needs. And if you'd rather not deal with a broker, check out these online platforms instead. They allow you to manage your account and avoid high costs associated with brokers.