When it comes to investing, there is no such thing as free. If there’s one thing that can influence your portfolio, affecting your ability to meet your financial goals and lowering your returns, it’s paying unnecessary investment fees.
Almost every person knows the concept of investment cost. However, not all of them know the complexities behind the true cost of financial products and fee structures.
Perhaps you’re wondering what every type of fee is for or perhaps you don’t even know how much you’re paying.
Today, we’re going to share with you several things to know about investment management fees. It does not matter if you’re using a commission-based company, a fee-only firm, or other types of financial management companies.
What are Investment Fees?
Investment fees are the expenses associated with maintaining your accounts, owning financial instruments, and getting portfolio management advice. However, the accurate definition varies on the professional advice you’re getting and the form of investments you hold in your portfolio.
Can You Negotiate the Fee?
A couple of investment fees are negotiable. However, there are particular types that you can’t negotiate. For instance, expenses associated with owning an ETF or a mutual fund aren’t usually flexible. However, every fund type will have various fees.
Meanwhile, if you’re working with a financial advisor, investment management fees are typically negotiable.
What’s The Usual Investment Management Fee?
The fee structure utilized in the financial management industry varies from one firm to another. Every company will include various expenses and offer particular benefits for their customers.
A lot of firms will bill every customer a percentage of investable assets with a lower percentage for high net worth. For instance, a person with a portfolio of more than $3 million may have an investment cost of less than 1%. On the other hand, a person with $500,000 in investable assets might pay a 2% management fee.
Though the percentage-based system is the same throughout the industry, the exact services covered and percentage will vary.
For instance, a couple of companies might include financial planning as part of their expenses. On the other hand, other companies might offer private banking services but only provide a discount on financial planning.
On several occasions, comparing companies is the same as comparing oranges and apples. It’s hard to measure what a normal portfolio management fee is.
What Fees Do You Pay When You Invest?
The fees you’ll pay when investing vary in the form of accounts you’ve got, your overall net worth, and the investments you hold in your account.
For instance, if you hire a professional investment advisor, you might have to pay an investment management fee on a percentage basis.
On the other hand, you’ll have to pay account administration fees and transaction expenses if you choose to invest in a DIY approach via a discount brokerage.
Furthermore, you might also be paying a performance fee and an MER (Management Expense Ratio) if you choose to invest in structured financial products. This includes ETFs, hedge funds, or mutual funds.