There are not many conversations I
-dislike- more than ones involving “nickel-dime” fees.
The reality is that they exist, there are few ways of avoiding them, and almost every firm charges them because “everyone else is doing it, and it is pure profit, so we need to charge a similar fee to remain competitive.”
Some people try to explain away these types of fees by using a politically correct speech that really means “we are running a business here, and the market dictates that we CAN charge these fees, so we do, so that WE can make more money.”
I am NOT a fee apologist. While I understand that companies exist to make $money$, I do not like paying a fee unless I receive something in return. However, when I feel as though an institution is charging a fee just because they CAN, I become H.I.G.H.L.Y. combative very quickly.
It is with that thought in mind that I decided to write this piece about the common nuisance fees that you we as investors face.
The quotes I used in this entry are actual quotes from investment firms that I have heard over the past 15 years. I am not naming which firm said them, nor am I accusing any firm of using these reasons…
note: if you have a LARGE investment portfolio, many of these fees may be waived
IRA FEE: This is an annual fee that many investment firms charge to anyone that maintains an IRA. It usually ranges $30-$50, but the most common one I have seen is $40. The go-to explanation I have heard for this one is that the company must charge this fee “to keep the beneficiary paperwork on file and to make sure everything goes smoothly upon the account holder’s death.” If that is the case, how are some banks/credit unions able to open an IRA and name primary and contingent beneficiaries without charging an annual fee? Hmmm…
INACTIVITY FEE: This one is especially annoying. It is actually a fee for NOT having any activity in your investment account. Investor owns X, Y, and Z and wishes to hold them indefinitely…now many firms have started to penalize that person because they are not profitable to the firm unless they buy or sell. There is no justification for this one, but one explanation you might hear is “it costs us money to mail out your monthly statements, so we have to recoup that somewhere.” If someone uses that line, then sign up for e-delivery (FREE) and call back and demand a refund.
TICKET CHARGE/CONFIRM FEE: Whenever someone buys or sells an investment, some firms add on a small fee called a ticket charge. Normally, this fee is around $5, but can be as high as $40-$50 depending on the investment. This is one of those fees that I do not mind because the firm is providing a service (executing your trade). However, if you maintain an account where you pay an annual fee as a percentage of your total account, I would refuse to also pay ticket charges. That, to me, is double-dipping.
Some firms call this a “confirm fee,” and they explain it as “covering the cost of mailing out a confirmation to the investor.” On which planet does it cost 5 bucks to mail out a piece of paper the size of a regular envelope? Keep your confirm and let me keep my “fiver.” As more and more investors have opted to go paperless, some firms have stopped charging this fee, while others have just changed the name to something else.
SMALL ACCOUNT FEE: This one is the most insulting fee in my opinion. What firms are telling you is that you do not have enough money for them to generate a large enough profit off of you, so they will charge you a fee in hopes that you will transfer. If this were happening to me, I would take the firm up on the transfer proposal. I would move my account. Just because someone does not have $100,000 (or $250,000 in some cases) in their account does not mean that they need LESS help with their investments. That would be like a doctor charging a higher office visit fee for someone having a cold, as opposed to someone with a gunshot wound requiring immediate surgery.
“Mrs. Swicegood, I am so sorry, but because you only have the sniffles, you need to pay a $100 fee for us to see you.”
“What about the man who ran in here 10 minutes ago? He was not charged a penny!”
“Yes ma’am, he was shot in the head, and we will make tens of thousands of dollars on his surgery, so we can afford not to charge him an office visit fee.”
COST BASIS FEE: Your cost basis means “what you paid for an investment.” Some firms will actually charge you a fee for having this information included on your statements. Without knowing what you paid for an investment, how will you know how it has performed? Unless you have Will Hunting’s photographic memory, you most likely will not remember what you paid for every single investment. This fee used to be charged by many firms, but has become obsolete over time.
interesting tidbit Some advisors have the option of NOT including your cost basis on your statements. LPL includes it on their statements. I feel the client has a right to know if my advice made them money or lost them money, but that is just me….
TRANSFER FEE: If you decide to transfer your account, firms will usually charge you a fee ($50-$150 range) to leave them. Goodbye, thanks for playing…since you are leaving, we won’t make any more profit on your account, so we shall hit it once more for “old time’s sake.”
sidenote Some firms allow your account to be transferred through a system called DTC, and for that, there is usually not a fee. More than likely they will NOT mention this to you, but if you ask for it, they may allow it if the security is DTC eligible. Save yourself the cost of a nice dinner.
There are other fees that could be added to this list, but in the interest of time, I decided only to touch on the most common ones. If you are like me, you have no problem paying a fee in exchange for a product or service, but when you are taken advantage of, you “raise cain.”
Just because I am in the investment business does not mean I like nuisance fees any more than the next person, and I feel it is your right to know what you are paying for.