Investing is a complex business, and among the various costs involved, one that often gets overlooked is the fee from the Securities and Exchange Commission (SEC). The SEC fee is a transaction cost that financial advisors must pay on the sale of exchange-listed and over-the-counter securities to fund SEC operations. Currently, it’s set at $8 per million dollars sold. Here’s what you need to know.
SmartAsset’s Advisor Marketing Platform offers financial advisors services like client lead generation, automated marketing and more. Learn about SmartAsset AMP today.
How the SEC Fee Works
The SEC fee is a regulatory fee imposed by the U.S. Securities and Exchange Commission on certain securities transactions in the United States. It is designed to fund the operations of the SEC, which is responsible for regulating the securities industry, protecting investors and maintaining the integrity of the securities markets.
The SEC fee is calculated based on a fee rate that is set by the SEC. In 2023, the current rate is $8 for every million dollars sold. This fee rate is typically a small fraction of the total dollar amount of the securities transaction. The fee rate may change from time to time, so it’s important for investors and financial institutions to stay updated on the current rate.
This fee applies to various types of securities transactions, including the purchase and sale of stocks, options and exchange-traded funds (ETFs). But you should note that it does not apply to transactions involving bonds or municipal securities.
Brokerage firms and other financial intermediaries are responsible for collecting the SEC fee from their clients when executing eligible securities transactions. The collected fees are then remitted to the SEC.
Generally, brokerage firms pass the SEC fee directly to their clients, which means that investors will see the fee as a separate line item on their trade confirmations or account statements.
Current SEC Fee Rate and How Much Advisors Pay the SEC
As of February 27, 2023, the SEC fee rate that is applicable to most securities transactions was set at $8.00 for every million dollars sold. The fee dropped by almost two-thirds, which had been previously set at $22.90.
The amount an investment advisor pays to the SEC depends on various factors, including the size and type of assets under management (AUM), the specific registration category (investment advisor, investment advisor representative, etc.) and the fees associated with regulatory filings and examinations.
Note: Fee rates can change over time, so it’s important to check the most recent rates on the official SEC website or through your financial institution.
What Is an SEC Fee Adjustment?
SEC fees are adjusted periodically to reflect changes in the regulatory environment and to ensure that the SEC has the necessary funding to fulfill its mission, which as stated earlier involves overseeing the securities industry, protecting investors and maintaining market integrity.
The most common type of SEC fee adjustment involves changes in the fee rate applied to eligible securities transactions. The fee rate is typically a small fraction of the total dollar amount of the transaction. These adjustments can involve increasing or decreasing the fee rate.
SEC fee adjustments could be made to fund SEC operations, respond to changes in trading volumes (higher trading volumes can generate more revenue for the SEC, but they may also require adjustments to ensure adequate funding), align with budgetary needs and comply with legislative changes.
How Advisors Can Prepare for the SEC Fee
Advisors, including registered investment advisors (RIAs) and financial professionals, should be well-prepared to handle SEC fees, which may apply to their clients’ securities transactions.
Here are six common steps advisors can take to prepare for SEC fees:
- Stay informed about fee rates: Because SEC fee rates can change periodically, advisors should check the official U.S. Securities and Exchange Commission (SEC) website or other authoritative sources regularly for updates on fee rates.
- Integrate fee calculations into systems: Advisors should ensure that their billing and reporting systems are equipped to calculate SEC fees accurately based on the applicable fee rates. This includes accounting for fee caps and exemptions where relevant.
- Disclose fees to clients: Advisors should clearly disclose to their clients the fees associated with securities transactions, including SEC fees. Transparency in fee disclosures is an essential aspect of client communication and builds trust.
- Monitor compliance: Advisors should establish internal controls and procedures to monitor compliance with SEC fee requirements. Review transactions and billing practices regularly to ensure that SEC fees are accurately collected and remitted.
- Documentation and record-keeping: Maintain records of securities transactions, including details of the fees assessed and collected. Adequate documentation is essential for demonstrating compliance with SEC regulations if needed.
- Educate clients: Advisors can educate clients about SEC fees and other costs associated with investing. Clients may have questions about the fees they incur and advisors should be prepared to provide explanations and answers.
Bottom Line
Understanding the SEC fee is important for advisors, as it can amplify operational costs that could be passed onto clients. Therefore, grasping how it functions is not only a key component of financial planning, but also essential for effective client communication.
Tips to Grow Your Advisory Business
- SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- Social media is another popular way to market your business. Exploring different types of social media content, including blog posts, polls, quizzes and video content, can help you to figure out an effective strategy to connect with clients.
Photo credit: ©iStock/damircudic, ©iStock/gustavofrazao, ©iStock/Pekic