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A quick guide to reviewing investing fees

Updated: Oct 26, 2023

There are a number of fees that come into play when selecting investments. Financial Planners not only need to worry about these, but so do do-it-yourselfers and anyone who has ever selected investments in a retirement plan. Below are some common fee terms you may come across and an easy to understand breakdown for each as follows:

  • AUM Fee (Also called Advisory Fee)

  • Expense Ratio

  • Trade Fees

  • Transaction Fee

AUM Fees

This stands for assets under management fees. This is essentially what an investment manager receives on an annual basis for selecting and managing investments. A common arrangement for those that have worked with an advisor would be a 1% fee, meaning that 1% of the portfolio is removed to pay for the advisor’s services in selecting investments, placing trades, and often providing additional financial planning. This can also be relevant in 401(k)s too if an advisor works with a retirement plan for a business. Generally, fees range from 0.5% - 1.5% of one's investment portfolio.

An example of this is as follows:

You have $200,000 with an advisor that charges 1% annually to manage your portfolio. Hence you would pay $2,000 roughly. These fees are typically deducted on a quarterly or monthly basis, and reflect on the monthly statement you receive. It is important to have a good understanding of what you pay in advisory fees over time, the NET overall performance of your accounts, and how thorough and planning focused your advisor is when determining the true value that you receive from this. Be wary of investment fees on the higher end of this scale as this can eat into the overall performance of your portfolio over time.

Expense Ratio

This is the most common, and often not as transparent, fee that pertains specifically to ETFs and mutual funds. This is what the manager of the specific fund you own charges for management of the funds’ holdings. These can range from 0.04% up to north of 2% of the funds' total assets, and usually represent higher analysis and trading activity for higher expense, but not always. Typically we recommend selecting low cost funds with an expense ratio less than 0.5% as the fund fee can substantially eat into the overall performance of the investment over time.

Trade Fees

Not quite as common, but certainly worth mentioning are trades fees. Some brokerages will apply either a percentage or set dollar amount for placing a trade. Many firms no longer charge this, and you can expect in a scenario where an advisor is managing an account on your behalf that this is rare or non-existent. This may be the case when calling into a brokerage to place trades vs placing the trade via their online platform. This may also be relevant for buying specific mutual funds or more complex products such as a Real Estate Investment Trust (REIT). Always review your brokerage’s fees prior to placing your own trades.

Transaction and Annual Maintenance Fees

On occasion firms will charge annual maintenance fees for retirement accounts, or other miscellaneous fees. These are not common, but often are a sign that it may be worthwhile to look at other companies as they do not serve much purpose or benefit to the account holder. These fees may be prevalent when moving money in and out of an account via an ACH link.

This extra complexity gives precedence for selecting low-fee investments, and aiming to simplify your overall investment strategy. If you opt to work with a financial professional for advice or investment management be sure to seek transparency on all fees regarding investments or services offered to ensure you have a good understanding of the costs involved.

Disclaimer: This content is intended to be educational, general information, and for illustration purposes only. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services.


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