The SEC’s Office of Investor Education and Advocacy is issuing this bulletin to make investors aware of the miscellaneous fees charged by some brokers.
When you use a broker to buy or sell securities, your charges will generally fall into two categories:
- a commission or markup associated with the trade; and
- in some cases, miscellaneous fees for other expenses.
What are miscellaneous fees and why am I being charged them?
Miscellaneous fees help to reimburse the broker for expenses incurred in performing the transaction or a service for you. Miscellaneous fees may be labeled in a variety of ways, including as postage and handling charges, administrative service fees, clearing and transfer fees, execution facility fees, office overhead fees, supervision fees or third-party charges.
How do I find out about the fees I’m being charged?
Brokers should provide written notice to customers of all service charges when accounts are opened, and customers also should be provided with written notice at least 30 days prior to the implementation or change of any service charges.
After each securities transaction, brokers must also deliver to you a confirmation statement with information about your transaction, including the commission and any other fees you paid. Sometimes each fee charged will be listed separately. For example, a confirmation statement may detail $10 for the security purchased and a $2 clearing fee for a total of $12. Other brokers may add these amounts together and only the total amount—$12 in this example—appears on the confirmation statement. In those instances where the commission and fees are not separated from the cost of the security purchased, the firm is required to give a breakdown of the charges upon request.
Fees Impact Your Return. To be a smart investor you should be aware of the costs associated with your securities trades and investments. Fees and other costs reduce your return on your investments, and can have a significant impact on the overall return of your investments over time.
How do I know if the fees I’m being charged are fair?
The fees your broker charges are required to be fair and reasonable. What is fair and reasonable will vary depending on the circumstances. It is a good idea to pay attention not only to the commissions your broker charges, but to other fees as well.
Some examples. While many brokers do not charge customers miscellaneous fees associated with a transaction, those that do may charge widely differing amounts. Some firms have charged different fees based on the branch office where the account is held and some firms have charged different fees to different customers.
The Financial Industry Regulatory Authority (FINRA) fined five brokers in 2011 for routinely charging excessive handling fees of between $65 and $99 a trade. Because these fees were far in excess of the brokers’ actual costs, FINRA found that the fees were actually disguised commissions that were not adequately disclosed.
The North American Securities Administrators Association (NASAA) has also discovered questionable practices regarding miscellaneous fees. In one case, customers were charged $500 to receive securities in certificate form when the broker’s own cost for the service was only $60.
What should I do if I think a fee is too high?
- Ask questions. If your fees seem too high, ask questions. Consider contacting the broker in writing if you are not satisfied.
- Negotiate. In some cases, fees are negotiable, so you can talk to your broker about reducing them.
- Shop around. You should consider how much you are paying for investing services and shop around as appropriate. Brokers, like any business, compete for customers on the basis of price and services. However, before you decide to move to a new firm, you should think about any tax consequences and fees that might result from closing or transferring your account.
- File a complaint. Information about contacting the SEC, FINRA and NASAA appear at the end of this document.
When researching brokers, you can visit FINRA’s BrokerCheck or call FINRA’s toll-free BrokerCheck hotline at (800) 289-9999 to obtain information about a broker, including any regulatory actions taken by FINRA against the broker. If your broker also is registered with the SEC as an investment adviser, you may use our Investment Adviser Public Disclosure (IAPD) website to research your broker. If you feel the fees charged to you are excessive, contact the SEC, FINRA or NASAA to report your concern.
Where can I go for help?
If you have a question, concern or complaint about an investment, or you think you have encountered fraud, please contact the SEC, FINRA or your state securities regulator to get assistance.
U.S. Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, NE
Washington, D.C. 20549-0213
Telephone: (800) 732-0330
Fax: (202) 772-9295
Financial Industry Regulatory Authority (FINRA)
FINRA Complaints and Tips
9509 Key West Avenue
Rockville, Maryland 20850
Telephone: (301) 590-6500
Fax: (866) 397-3290
North American Securities Administrators Association (NASAA)
750 First Street, NE
Washington, D.C. 20002
Telephone: (202) 737-0900
Fax: (202) 783-3571
For our Investor Bulletin about how to read confirmation statements, visit investor.gov/news-alerts/investor-bulletins/investor-bulletin-how-read-confirmation-statements.
For our Investor Bulletin about how fees impact your investment, visit investor.gov/news-alerts/investor-bulletins/investor-bulletin-how-fees-expenses-affect-your-investment-portfolio.
For FINRA’s press release regarding the brokerages fined for excessive handling fees, visit finra.org/Newsroom/NewsReleases/2011/P124283.
For NASAA’s press release about its broker-dealer fee survey, visit nasaa.org/30549/survey-finds-inconsistent-broker-dealer-fee-disclosure-questionable-markups/.
For our Investment Adviser Public Disclosure (IAPD) website, visit adviserinfo.sec.gov.
For additional investor educational information, see the SEC’s website for individual investors, Investor.gov.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.