This Week's Exciting Pin: Ten Things You Need to Know about Investment Fees and Expenses

This week’s featured pin discusses investment fees and expenses, which are too often confusing and unclear.  At Family Investment Center, we do our best to simplify these fees and to make our fees completely transparent to our clients. With that, here are 10 Things to Know about Investment Fees and Expenses:

1.     You must consider transaction costs.  “Discount brokers” charge $9-20 per trade, but full service brokerage trades can run to hundreds of dollars per trade. Bonds are often traded on a hidden “mark-up” basis that can easily be $100-$300 per bond.

2.     Annual account fees.  These are administrative fees some custodial companies charge on accounts each year.  

3.     Front-end vs. Back-end load.  It is just like it sounds; front-end charges a fee up front when you make a purchase and back-end charges a fee when you sell a particular fund.  Be sure to watch for loads when buying and selling securities.

4.     Expense Ratio.  This is what a portfolio manager charges to manage a mutual fund.  The expense ratio is represented as a percentage, which is deducted from your returns.  The lower the expense ratio, the higher percentage of return you keep in your pocket. This is usually an ongoing fee in addition to front- or back-end loads. 

5.     Investment Management Fees.  A fee charged as a percentage of the total assets being managed for discretionary accounts, where a manager makes decisions on behalf of the client.

6.     Administrative fees.  These fees are included in the expense ratio of a mutual fund.  They cover the costs of maintaining the customer service line, mailing, record-keeping for the fund, and so on.

7.     12 b-1 Distribution.  This fee can range from 0.25%-1.0%.  It covers the cost of advertising and distribution. This fee is built into the expense ratio of a mutual fund.

8.     Commission-based vs. Fee- Only- Commission-based agents are limited to only what they have available to offer, which could fall short in offerings in their clients’ best interests. The commissions are an added expense in the product. Put simply, commission-based brokers often offer a narrower range of products with higher expenses.

9.     Family Investment Center works to find stellar managers while keeping expense ratios as low as possible.  Utilizing Morningstar® research software to explore a large universe of investments, we are able to choose those that are in our clients’ best interests without judgment being clouded by commissions or trade fees. 

10.     At Family Investment Center, our only compensation is an annual management fee, which is a small percentage of assets under management.  We do not receive compensation based on sales.  Period.