Knowledge is Key When it Comes to the Fee!

Knowledge is KEY when it comes to the FEE!

When you are investing your hard-earned money, you absolutely want to grow it, and most definitely, you don’t want to give it away! When it comes to your money accounts, there are areas that deserve your attention at least once a year. YES, once a year! As someone who owns their financial responsibilities, you must set a time period when you will review your accounts. Below are some areas where you can begin looking and understanding the fees that are charged to you and how you can get them as low as possible.

Financial Advisor or Consultant Fee:  This is the fee that an advisor charges you to open your accounts, monitor, and trade them on your behalf. As you grow your assets, you will have more negotiating room. An account greater than $500,000 is a good place where you can start asking for better fees. These fees are almost always negotiable. To start, you want to aim for fees less than 1% of your managed portfolio. Stick to your guns and shop around.   Note: this fee may not include a financial plan, you should ask to be sure.

Custodian or Brokerage Fee: This is the entity that holds your money, and they will charge you a fee either based on your assets (called and asset-based price or ABP) or based on your buy and sell transactions (called a transaction-based price or TBP). Before opening an account, either on your own or with an advisor, you should know what this is and if you can qualify for zero fees. There are options to trade investments with no transaction fee. The custodian’s website should detail those options for you. If you cannot find them, call and ask. This is your hard-earned money, don’t be afraid to ask! (As of this post, a reasonable fee is $4.95 per stock trade, with a list of mutual funds and ETFs available to trade at $0 commission or transaction fee.)

Fund Fee: A mutual fund fee or an ETF fee is quoted as an expense ratio. This is a percentage of assets invested in the fund that is paid to the fund company to cover costs for the money manager, marketing, administration, distribution and any other expenses related to operating the fund.  Fund fees can vary, most of them are below 2%. As a research analyst, I give a cautious eye to funds with higher than 1% fees, but most importantly when the fee is higher than the average for a group of similar funds (different fund research tools will group funds into categories and you can see the group average). Some mutual funds may have sales charges called loads; you must know if this applies before you decide to invest. Please read the prospectus for the fund first and look for the section about fees or the expense ratio. I do not believe there is any reason you should select a fund with a load or a sales charge. There are just too many options out there, and a fund family may have the same fund available with a no-load option. Again, if you cannot find it on their website call and ask. Avoid costly mistakes when possible.

Redemption Fees: A redemption fee is when you have bought and sold an investment within a certain period of time, and there is a fee for doing so.   Many funds have an early redemption fee that will be charged within 60 or 90 days. This is disclosed in a mutual fund prospectus, and you should be aware of it. The purpose is to discourage short-term trading.

Not only do I want you to be aware of these fees, but it is also good to set a target for what total percent of your portfolio will go toward fees.  My suggestion is to try to keep all these fees below 1.5% per year, less if you have more than $1,000,000 within your portfolio of traditional investments. Each year look at areas where you can ask for a reduced fee. Remember, when you review your investments for performance and fees compare them to similar funds and see how they stack up. Fees can change often so it is important to MONITOR!  Knowledge is key when it comes to the fee!

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