I have what is probably a basic question regarding fees. With regard to mutual funds, how much of the fee cost am I paying to fund manager, and how much am I paying to the online broker? If I buy the same mutual fund through two different brokers, will I pay the same amount of money for the shares in both places? My question is coming from an investment account that I started last year. I carefully selected my funds based on guidelines set out for me in an investment seminar I took and I did my best to pay attention to the fee ratios. One of the funds had a higher minimum purchase amount than the others by a fair amount, so when I set up my auto purchases I had to leave it out. When I went to manually make the purchase recently I realized that there's a pretty hefty fee per transaction for that fund. Is this something I could get around by moving to a different broker? (I may do so anyway to get more options to choose from for that portion of my portfolio, but I want to fully understand what's going on first.)
These are different fees we are talking about. You have the fee that the company managing the fund charges. It's displayed as a percentage and paid out yearly from the capital in the fund. So it won't come out of your bank account, it will come out of the cash the fund owns. Each fund has their own set fee, regardless of which broker you are going through. Then there is the commission fee that your broker charges for every transaction. This is completely dependant on the broker, some charge a lot more than others.
Thanks, that was what I thought. I wanted to make sure before I went through the work of moving the money somewhere else (probably having to pay something again to get it out) only to find that it would be the same there.
When moving your portfolio to another broker you have two options. One is to just move all of your holdings, your current broker will certainly charge a fee for this... could be quite a high fee. The new broker will usually not charge anything as they are happy to get a new customer. Other option is to sell what you have and then move the cash and buy again. This is more simple, usually faster and also allows you to rebalance your portfolio if you want to. Here you will pay a sell commission to the old broker for all the different holdings you have as well as a buy commission for the new one when you repurchase them. This could still end up being cheaper. One major difference is also taxes. If the holdings are valued higher than when you bought them (they most likely are) when selling them you will create capital gains that you will have to pay tax on. If you simply transfer your holdings then you haven't realised those capital gains and there is nothing to tax.
I would try to avoid the transactional upfront fee platform that charges a hefty 5-6% upfront fee ("A" shares) when you buy into each fund, or similar fee when you sell the funds ("B" shares). I'd look into a managed money platform with a reputable BD that charges a flat annual % (usually more or less 1% a year) regardless of just about anything you do inside the account. They will have share classes of funds such as "institutional" or "investor" shares. The managed money platform typically works better if you have at least 6 figures to invest, but even if you have less than that it's worth looking into with several different brokerages.
Yeah, this isn't a percentage fee up front, it's a flat amount. That's why I don't have it in my automatic purchases with everything else; I want to wait until I purchase a large enough quantity to spread out the charge. I'm working on the six figure part. ;-) I understand that a lot of the smaller things get smoothed out when you have more to begin with, but the financial advisor I talked to indicated that we needed to be investing some money in a non-tax-advantaged account (meaning not a retirement account). (This was through a seminar provided by my employer. I didn't pay him anything, and he wasn't in a position to sell me anything directly, though some people who were closer to retirement did hire him on for more thorough planning.)
