Understanding Fees

As with anything you buy, there are fees and costs associated with investment products and services. These fees may seem small, but over time they can have a major impact on your investment portfolio. Understanding the fees you pay is important to investing wisely.

The following chart shows an investment portfolio with a 4% annual return over 20 years when the investment either has an ongoing fee of 0.25%, 0.50% or 1%.

Change of portfolio value over 20 years

 

The best advice we can give you about understanding fees and investing wisely is to ask questions. For example:

  • What are the total fees to purchase, maintain, and sell this investment?
  • Are there ways that I can reduce or avoid some of the fees I’ll pay, such as by purchasing the investment directly?
  • How much does this investment have to increase in value before I break even?
  • What are the ongoing fees to maintain my account?
  • For mutual funds: How much will the fund charge me when I buy and/or sell shares?
  • For the investment professional: How do you get paid? By commission? By the amount of assets you manage? By another method? Do I have any choice on how to pay you? Should I pay you by the transaction, or pay a flat fee regardless of how many transactions I have?

Investment Products

Investor Bulletin: Mutual Fund Fees and Expenses
Updated Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio
Investor Bulletin: Mutual Fund Classes
FINRA's Fund Analyzer (link is external)

Investment Services

Investor Bulletin: Brokers' Miscellaneous Fees
Investor Bulletin: Opening An Investment Advisory Account

Common Fee Types

Mutual Fund Fees and Expenses
12b-1 Fees
Distribution Fees
Sales Charge (Or Load)
Redemption Fee
Exchange Fee
Account Fee
Purchase Fee
Management Fee
Shareholder Service Fees
Total Annual Fund Operating Expense

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