Here’s How Much 11 Popular Investment Firms Charge Fees
We told you before: passive investing is the best way for most of us to make money in the stock market. You choose solid mutual funds, and then, in essence, “set and forget” your investments. However, these mutual funds come with a commission, and Personal Capital shows us exactly how much.
Even if they are not actively managed, mutual funds still include commissions or expense ratios . The brokerage firm that oversees the fund (such as Vanguard, Fidelity, or Ameritrade) charges this fee. This is usually a small percentage, but it can add up. Personal Capital analyzed eleven large firms to estimate how much they were charging their clients. Merrill Lynch made the most profit with 0.68% commission. Scottrade was the lowest at 0.17 percent.
Interestingly, Vanguard was not included in their review, and Vanguard funds are known for their incredibly low cost rates. According to Vanguard, their average ratio is only 0.18 percent. The numbers are fun to look at, but if your brokerage firm isn’t on this list, you can use a tool like FeeX to find out exactly how much you are paying for commissions.
As you look at these numbers, keep a few things in mind. First, the chart above does not take into account the average profitability of each brokerage company, which means they may charge more for some reason: because they make you more money. Second, each firm has many different funds and their fees differ; the number you see is average. Finally, when investing, it is difficult not to pay any commissions at all. Paying the cost ratio is like a buy-and-hold investment.
Although we are fans of passive investing, many individual investors work with brokerage companies that actively manage their investments. The whitepaper Personal Capital also reveals how much popular firms charge on average. If you pay this commission, you need to be sure that you are getting your money back. The financial website Financial Samurai puts it this way:
If you find yourself in an actively managed mutual fund set up by an asset management company that also charges you an annual advisory fee, you should immediately ask your advisor WHY are all the lower cost options available. We know why, but it would be good to get them to explain that they don’t care about your best interests in order to make more money.
Once they try to explain why their actively managed mutual funds are the best, really ask yourself if they are worth the fees you pay each year. If the answer is no, then transfer the money! Okay, maybe give them a three month trial period to prove themselves, but after that find an alternative if nothing changes. It’s much easier than you think.
For more details, check out the Personal Capital article. Financial Samurai also explains these fees in more detail at the link below.
Real cost of fees | Personal capital through a financial samurai