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Don’t You Just Hate When You Overpay?

Do you remember that old store Circuit City? I was a latch-key kid, so I spent many a restless afternoon glued to the T.V. (no-cable, naturally). I watched so much T.V. after school that to this day, I can vividly recite word-for-word almost every commercial from the 80s & 90s without fail along with the company’s tag line.


I received an email a few days ago from someone who’s child attended one of my teen investing classes many years ago (like 7 years ago).

She contacted me to ask about investment fees. Specifically, how can she tell if the amount she’s paying for her accounts is reasonable (read, she’s not overpaying)? She works with a team of Financial Advisors but wanted to get an unbiased answer.


Which brings me back to that old Circuity City commercial, in this particular commercial, a boy who had purchased a Walkman (remember those?) goes back to the store after seeing the Walkman being advertised for a lower price just one week after he bought it. The store refunds the difference in price. Wouldn’t it be nice if every company you dealt with had a similar policy?


Unfortunately, that’s not the case for many companies, and it can be tough to figure out whether or not you are getting a good deal.


Well, there’s one area I can help with, and that’s with your investment accounts. Whether it’s an employer-sponsored retirement account or an account you set up on your own, there are a few fees you should get to know so that you can determine if you’re getting a good deal or if you’re being taken for a ride.


Before we get to the fees, here are three things to keep in mind about investment accounts and the prices you pay. The charges are usually based on 1) the type of account: is it an online-only account or do you work with an advisor to manage the account. Someone who has an online-only self-directed account is going to pay a lot less than someone with an account with a traditional Financial Advisor; 2) Is it a buy & hold account or an actively traded account? If you have an actively traded account (meaning assets are continually being bought and sold), you’ll pay a bit more. Someone using a passive strategy with little to no trading will pay less 3) the amount of money you have with the firm so that your accounts can be bundled to save you money.


Keep these three things in mind as you review the fees in your account.



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What is it: Let’s start with the sales charge (also known as a load). This is the additional fee you pay to a brokerage firm for the purchase of a mutual fund. Their cost for serving as the middle man.


What are the types?

There are 3 main types of sales charges I tell people to stay away from, A-shares, B-shares & C-shares.  

A-shares are mutual funds that charge you an upfront fee. B-shares charge you fees on the back-end (when you’re ready to sell the fund), and C-shares can be classified as back-end but are more commonly known as level-load because you pay a fee every year.


Why you should care

These fees can eat into your returns.

A-share fees can be as high as 5.75%. For example, let’s say you have $1,000, and you invest in an A-share. You will be charged $57.50 upfront. That means you need to make sure you get a return of at least 5.75% to break even. 

B-shares have a similar fee structure, with the main difference being that the fee decreases the longer you hold the fund. For example, you could be charged 5% if you buy a B-share and sell it within the 1st year, but if you keep it until year 6 or 7, the fee might be 0. 

Lastly, C-shares are known as level-load because you can pay 1% per year for owning the shares. 


Am I paying too much?

If at all possible, if you’re in the market for mutual funds, look for funds that have no sales charge (i.e., no-load funds). Many firms offer them (ex. Fidelity, Vanguard, Charles Schwab).

If you’re not sure if a particular fund you own has a sales charge, check out this handy tool from Finra, just enter the ticker symbol of the fund and it will tell you what the fee is for that particular fund along with a lot of other useful information.?



What is it?

The asset under management fee the percentage charged by the broker for (you guessed it) managing your assets. The cost can be as low as .25% (if you go to a robo-advisor) or as high as over 2% (if you use traditional Financial Advisors).


What’s’ the fee based on?

The fee is based on two things, how much you have to manage (account balance), how much work is needed for your account (active or passive strategy). Some firms have a sliding scale fee structure. The more assets you have under management, the lower your fees.


Am I paying too much?

It depends on the type of account, where your account is held, how active your account is, and the relationship you have with your Financial Advisor.

If you’re paying over 2% or more and you hardly ever hear from your advisor, it may be time to reassess the relationship.



What is it? 

Another type of fee you should be mindful of is called a wrap fee. A wrap fee is charged by investment firms as part of a bundled service. The is billed every quarter or annually and is a percentage of the assets under management.

The average fee is anywhere between 1% to 3% depending on your account size.


Am I paying too much?

The purpose of the wrap account is to keep your costs down. If you have an account of considerable size and you like to actively trade, your account may require a bit more work and lead to more fees, so a wrap account may be your best bet, and paying 2% may not be a bad deal.

If you use a buy & hold strategy and have a wrap account, it’s time to reassess and look into other types of accounts because having a wrap account doesn’t work best for your strategy.




Other fees are often overlooked but should be taken into consideration when reviewing your accounts. I call these the fee potpourri.



There are two types of transaction fees I want to focus on: trading and surrender.


Why do I have to pay to buy & sell?: Trading fees

Nothing kills an investor’s enthusiasm, like finding out not only is there a cost to buy an investment, but there will be a cost to sell as well. Commissions (fees you pay the firm to buy and sell a security) can be as little as $0 or as high as $1,500 per trade (yes, I’ve placed a trade, and that’s what it cost just to buy).

Trading fees can be a buzzkill, especially when you find out that they can be avoided.

If you’re still paying commissions, your options are to 1) set up an account with a broker that doesn’t charge commissions (ex. Robinhood) or use a wrap account (see above).


What the heck is a surrender fee?

A surrender fee is what you are charged for certain securities(ex. Annuity or mutual fund) if you sell it within a specific time frame.

It’s usually a percentage of the proceeds. Remember the B-shares I mentioned above with it’s declining fee structure? That’s a surrender fee.


Am I paying too much?

Yes. If you’re thinking about getting out of an investment early and there’s a surrender fee, avoid it at all cost because there’s no reason to pay this fee.



An account maintenance fee is the fee brokerage firms (not all) charge you just to maintain your account (i.e., hold it there). The cost can be as little as $20 or as much as $95, and you pay it every year.


Am I paying too much?

Hate to say it, but yes. If you’re being charged an account maintenance fee, compare your account type to that being offered by other brokerage firms. Your goal should be to find a similar account at another firm with no maintenance fee.


Fees aren’t always avoidable but we can educate ourselves about them to minimize how much we pay. Knowing what the typical fees are and being mindful of them can save you a lot of money in the long run and make you a much better investor.


By the way, if you want to watch that Circuit City commercial, you can check it out here.

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