This is certainly a simplified example, but it does a great job of illustrating just how costly those seemingly small investment fees can be over time. In this case, a 1% management fee would have cost you more than $346,000 in returns over a period of four decades!
Types of brokerage fees
Commissions are the best-known type of brokerage fee you might encounter, but they certainly aren’t the only cost of investing you should keep in mind. Here are some of the charges a broker may have.
Commissions
Virtually all brokers have eliminated commissions for online stock trades, but there are still investment commissions to keep in mind. For example, while online stock trades are free, most brokers still charge for trades made by phone with the broker’s assistance or for stocks that trade on the over the counter (OTC) markets. Many have commissions for options and cryptocurrencies, and most have mutual fund commissions for funds that aren’t on a no-transaction-fee (NTF) list.
Inactivity fees
Some brokers — especially those that are designed with frequent traders in mind — charge an inactivity fee if your account remains idle for too long.
Subscriptions
Some brokers offer subscriptions to investing publications, third party research tools, and even trading apps that you’ll have to pay a monthly or annual subscription fee to use.
Expense ratios
If you invest in a mutual fund or ETF, it will almost certainly have management fees, and these are known as the fund’s expense ratio. An expense ratio is the percentage of your assets that go towards fees each year. It isn’t a direct cost (it is simply reflected in the fund’s performance), but it is important to realize that mutual fund and ETF investing isn’t free.
Custodial fees
Some brokers charge an additional (usually small) fee for retirement accounts like IRAs, known as a custodial fee.
Management fees
If you have a professional investment manager selecting stocks and ETFs for your portfolio, you’ll probably have to pay for the privilege. The standard management fee tends to be 0.80%-1.0% of assets under management annually for a human financial advisor, while a robo advisor that automatically allocates your money tends to charge around 0.20%-0.50%.
Other fees
Brokers often charge fees for certain services and activities that may or may not apply to you. These may include wire transfer fees, insufficient fund fees for check deposits, fees for transferring investments to an external account, a fee for requesting a paper statement or trade confirmation, and fees for trading foreign stocks, just to name a few.
How to avoid stock broker fees
To be sure, finding a broker that meets your needs and is a great fit for the types of investments and trading behavior you use is more important than finding the cheapest option. But with that in mind, the best way to keep brokerage fees to a minimum is to shop around. Our top brokers list is a good place to start, and once you’ve narrowed down the list to two or three that best meet your needs, compare their pricing.
One smart move is to thoroughly read a broker’s pricing structure before opening an account. You can typically find it through the broker’s home page or by running an internet search for “‘NAME OF BROKER’ pricing.” This can be a smart way to compare two or more brokerages you’re interested in — especially if their commission structure is identical.
Which brokerage has the lowest fees?
All major brokers that we cover have eliminated commissions on online stock trading, but there are some that charge fees for trading options, mutual funds, and cryptocurrencies. Some brokers are focused on eliminating fees; Robinhood, SoFi, and Webull are a few popular examples where most trades are completely free.
