When you invest, it’s important to know what you’re paying for and how those costs affect your returns. Whether you work with a financial advisor, use a robo-advisor, or manage your own investments, fees need to be considered. Understanding them helps you make informed decisions and avoid surprises.
Each year, firms must provide you with a Charges and Compensation Report. This report shows what you paid to the firm to manage your account and investments, including:
Account operation fees
Transaction fees
Payments made to third parties
If you’re ever unsure about a fee or charge, ask your advisor or investment firm to explain it. You have a right to know what you’re paying—and why.
Here are some of the most common fees you may come across:
Portfolio managers and many advisors charge a fee based on a percentage of your portfolio’s value—usually between 1.5% and 3%. This fee covers the cost of managing your investments and providing advice tailored to your goals.
These are fees charged each time you buy or sell stocks, bonds, or other investments. Commissions vary between firms. In commission-based accounts, be aware that frequent trading could increase costs—and may not always be in your best interest.
If you use a discount brokerage, you’ll typically pay a basic fee per trade. Some platforms may also charge extra based on the number of trades, account size, or additional services.
Some advisors charge a flat fee—often hourly—for their time and expertise. Others may use a hybrid model, combining a management fee with commissions on individual transactions. Fee-only advisors do not earn commissions or referral fees.
The MER is the annual cost of running a mutual fund, expressed as a percentage of the fund’s value. It includes legal, accounting, and management expenses. A higher MER means more of your investment goes toward fees, which can reduce your returns over time.
These are indirect fees paid by mutual funds to brokerage firms to execute trades. They’re not included in the Management Expense Ratio (MER), but they do reduce the fund’s overall return.
If you sell a mutual fund within a short period—usually 90 days—you may be charged a fee. This discourages quick trades that can hurt the fund’s performance.
Some advisors receive an annual commission—called a trailer fee—from the fund manager for as long as you hold the fund. These fees typically range from 0.25% to 1% and are paid out of the fund’s management fee. If your advisor receives a trailer fee, they should provide ongoing support and updates about your fund’s performance.
These are fees you pay when you first buy an investment, usually between 0% and 4%. If a fund advertises “no sales charges,” check other fees like the MER to make sure it’s truly cost-effective.
These fees apply when you sell mutual fund shares within a set period—typically five to ten years. The fee decreases over time and eventually disappears. Early redemptions may cost between 0% and 6% of the fund’s value.
You may be charged for switching funds, starting a registered plan, or opening or closing an account. Always review your account agreement and ask questions if anything is unclear.
Even small fees can add up over time and impact your investment returns. For example, a fund with a high MER must earn more just to break even. Understanding how fees work helps you compare options and choose investments that align with your goals and your budget.