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Even the smallest brokerage fees can eat into your investment returns over time, so it’s important to understand exactly what you’ll be paying a brokerage provider before you invest. Learn about the common types of brokerage fees, how much they typically cost and how to minimize them.
Understanding Brokerage Fees
Brokerage firms and individual brokers charge fees for specific investment services. Most brokerage fees fall into one of three different buckets: transaction costs, advisory fees and ongoing expenses.
- Transaction costs: Fees from buying and selling securities, which you’re charged when you make a transaction. This is also called a trading fee.
- Advisory fees: Fees charged for financial advice or portfolio management.
- Ongoing expenses: Regularly charged fees, such as account maintenance fees.
Common Types of Brokerage Fees
Below are common types of fees associated with brokerage accounts, which will vary in amount depending on the type of brokerage account.
The two main types of brokerage accounts are self-managed, such as an online account you invest with directly, and a managed brokerage account, which is run by an investment advisor.
Potential brokerage fees
- Commissions: The fee you pay to the broker for executing a trade. These can also be called broker fees.
- Loads: A sales fee you pay when buying or redeeming shares in a mutual fund or variable annuity.
- Account maintenance fees: A monthly, quarterly or annual fee for holding your money in a brokerage account.
- Inactivity fees: A charge that occurs if you have made few or no transactions for a specific period of time.
- Account closing fee: The fee for closing your account.
- Margin interest fee: The interest that a broker charges you for trading with borrowed funds.
- Wire or transfer fees: A fee that occurs when you wire money from your brokerage account or transfer assets to another broker.
Source: U.S. Securities and Exchange Commission
Costs of Brokerage Fees
Costs vary widely depending on the brokerage firm, account type and investments you choose.
Most online investing platforms nowadays offer zero-commission trading. But trading with the assistance of a professional comes at a cost, typically as a flat fee or percentage of your funds. Charles Schwab, for instance, charges a $25 service charge for broker-assisted trading while Fidelity Investments charges between 0.50% and 1.50% for wealth management with an advisor.
Robo advisors tend to charge fees of around 0.25% to 0.50%.
Make sure to compare fee charges from multiple brokerage firms to get the best deal.
How Brokerage Fees Affect Your Return
Even a fee as low as 1% can significantly eat into potential earnings. Take this example from the U.S. Securities and Exchange Commission (SEC): an annual fee of 1% on a $100,000 investment portfolio growing 4% annually would amount to a whopping nearly $28,000 in fees after 20 years.
This example only highlights costs from commission fees. You’ll need to consider other potential fees that come with brokerage accounts.
Sources:
U.S. Securities and Exchange Commission. (2023, December 7). Investor Bulletin: How to Open a Brokerage Account. Retrieved from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_openbrokerageaccount
Luthi, B. (2023, September 13). How Much Does a Brokerage Account Cost? Retrieved from https://www.experian.com/blogs/ask-experian/how-much-does-brokerage-account-cost/
FINRA. Fees and Commissions. (n.d.). Retrieved from https://www.finra.org/investors/investing/investing-basics/fees-commissions
