While “fees” may seem like a straightforward term – a fee is pretty much the same wherever you go – fees when it comes to investing can become complicated. It doesn’t matter what type of investment, there’s usually some sort of fee involved.
“Some people may base most of their portfolio choices on how fees are charged,” says Richard Cayne of Meyer International. “But there’s more to it than that.”
There are basically two types of fees
It is most likely that within your portfolio, you face both transactional and ongoing fees. Transactional fees are charges, well, for transactions. Some financial institutions make their money by charging you every time you buy, sell, or exchange one of their instruments. Others charge ongoing fees, such as for operating expenses or for advisory services. Even financial professionals must make a living, and they too may offer their services either by transaction or as an ongoing service.
But, as with many things in life, there are investment options that may charge a combination of transactional and ongoing fees. These numbers can range from around 5% to 0.25%, or even less, and although it may seem like a small amount, these small amounts can add up over time. However, you must weigh the value of the overall investment/service with the fees being charged.
Even when there’s no fees, there are fees
There are those that tout no-load funds. Investors can buy and sell these funds with no sales fees. In some cases, there may be maintenance fees, and to make not charging these fees feasible, there are limitations to the type of investment, which is a kind of fee in its own right.
There are investment platforms that do not charge commissions, but you may be giving up the quality research and advice that comes with those that do. Again, is missing out on investments because you weren’t properly informed worth not paying a fee? For some, the answer may be yes, but most likely, it is no.
“It might seem like a better choice to go for the lower fee option, but don’t let fee structures get in the way of an attractive, more suitable investment choice,” says Richard. “And your financial adviser or consultant should be able to explain all fees simply and clearly. That’s our job – to help you make educated decisions. In addition if the consultant levies no fee they are receiving fees from the investment house which the investment house deducts in all cases from the client account with or without an intermediary in the middle so it is usually more attractive for clients to get the extra service by having the intermediary consultant in between. It simply is added value and doesn’t cost the client anything. Often at times the fees can be negotiated down for larger sums or larger volumes which our firm may introduce to the investment house therefore we help our clients get the best deal.”