What to Know about Investor Brokerage Fees

There are many things to consider before deciding where and how to invest your money—how much you can afford to put into your investments, asset allocation, your comfort level when it comes to risk—but many investors overlook the potential costs involved. Periodically, investment and brokerage fees will be deducted from your account, reducing the amount of money ‘at work for you.’ If you don’t do your homework, and ask the right questions, excessive fees can take a toll on your investment returns.

Types of fees

The types of charges vary from firm to firm, but may include:

• Brokerage commissions – what brokers charge for clearing and executing a trade
• Advisory fees – what financial advisors charge for their investment advice
• Mutual fund transaction fee – the fee you pay for buying or selling certain mutual funds
• Management fee – the fee charged by your investment manager based upon percentage of the ‘assets under management’
• Trade commission – a fee charged for buying or selling stocks
• Front end loads and back end loads – a fee charged when purchasing a mutual fund (front end load) or when redeeming a mutual fund (back end load)
• 401(k) fee – an administrative fee charged for maintaining a 401(k) plan

That’s not to say you’ll be charged all these fees, but they are possibilities.

The right questions to ask your financial professional

1. How do you charge for your services? Take the time to understand the full scope of how they charge, whether an advisor fee only (a monthly, quarterly, or annual percentage of the assets they are managing for you) or commissions for clearing and executing your trades.
2. Do you charge an annual fee, and if so, how much? Not all brokers charge an annual fee.
3. Do you charge for research and data? Some brokers do not charge for research and data.
4. Do you charge a fee for inactivity? Choose a broker who does not charge you for inactivity over a period of time.
5. Do you charge commissions?

Ways to reduce trading fees

Common sense ways to reduce trading fees, some based directly on the questions listed above.

• Invest with a firm that doesn’t charge high commissions or fees for executing trades.
• If you are making large-scale trades, use a fixed-price broker, which charges the same commission no matter how large your trade.
• Go shopping—for low trading fees, that is. Research brokers and find the one with the lowest fees that also offers the services you desire. Get the most bang for your buck.

Beware of scams

Investing, in and of itself, can be a risky endeavor, even at the best of times. But there are outright frauds and scammers out there, just waiting to separate you from your money. Investment fraud hits Americans to the tune of $10 to $40 billion dollars per year, and part of that involves fraudulent fees. It’s a good idea to make continually checking your statements and keeping an eye on your investments a habit. Watch for fees and commissions that seem out of the ordinary. Here are some common scams to watch for:

• Advance fee fraud – This is a big one, and it’s just what it sounds like. The victim is asked to pay an upfront fee in order to secure a usually worthless investment, product, or service. The scammer often claims to be from a financial institution or government agency, and may even have an extremely official looking website. Always remember, if it sounds too good to be true, it probably is.
• Fee scams targeting workers – These scams are often aimed at vulnerable workers who have lost their jobs due to COVID-19. The victims are offered the possibility of earning high investment profits from the comfort of their homes, but then must pay exorbitant fees to access those alleged profits.
• Excessive advisory or wrap fees – A fee charged as a percentage of an account’s total value, instead of a commission. Some brokers charge much more than is the norm.
• Churning – When a broker buys and sells over and over, literally churning the victim’s account, charging a commission for each buy and sell order. There is also something called reverse churning, where a broker charges excessive advisory fees on trading accounts holding long-term or illiquid investment products.

If you feel you may have been the victim of investment fraud, the attorneys at ChapmanAlbin are here to help you. Call us for a free consultation.