How to Avoid Investment Fees

Every dollar you pay in investment fees is a dollar that isn’t working toward your financial future. While many fees may seem small on their own, they can compound over time and reduce your long-term investment returns. Understanding where investment fees come from, and how to minimize or avoid them, can help you keep more of your money invested and working toward your financial goals.

A financial advisor can help you review your portfolio fees, so together you can determine how to avoid investment fees based on your holdings.

Types of Investment Fees

Before you can reduce or avoid investment fees, it’s important to understand where they come from. Depending on the investments you own and the services you use, you may pay a variety of fees that can gradually reduce your returns over time. Knowing the most common types of investment fees can help you make more informed decisions and identify opportunities to lower your investing costs.

Management Fees

Investment advisory fees are charged by financial advisors and investment managers for managing a portfolio or providing ongoing financial advice. These fees are often based on a percentage of assets under management (AUM), although some advisors charge flat fees, hourly rates or subscription-based fees. Over time, even relatively small annual fees can reduce long-term investment returns.

The average investment management fee can vary based on many factors, but this is the average range for different types of management fees.

Average Investment Management Fees

Type of Fee	Average Fee
Percentage-based fee	0.59% to 1.18% of AUM
Hourly fees	$130 to $300
Flat fees	$7,500 to $55,000 per AUM
Annual retainer fees	$6,000 – $11,000
Robo-advisor and online advisor fee	0.25% of AUM

Source: SoFi

So, for example, if you have a $100,000 portfolio with a 1% management fee, you’d pay $1,000 yearly. Over 20 years, with a 7% return, your portfolio could grow to $286,768 with the fees, as opposed to $324,340 without them. It’s critical to account for these fees, as they directly affect your investment’s long-term growth.

Fees Per Trade

Every time you buy or sell a security, you may incur a fee known as a trade commission. These fees can vary dramatically, with some free online trading platforms offering zero-commission trades, while full-service brokers may charge more for additional services.

If you are an active trader, these fees can accumulate quickly, potentially eating into your returns. For example, if you make 100 trades a year at $10 each, you will pay $1,000 in fees, irrespective of the trade’s success.

Expense Ratio

Mutual funds and exchange-traded funds (ETFs) charge expense ratios to cover the costs of operating and managing the fund. The expense ratio is deducted from the fund’s assets, so investors typically do not receive a separate bill. Actively managed funds generally have higher expense ratios than index funds because they require more research and portfolio management.

This fee, which is a percentage of the fund’s assets, covers ETF fees or mutual fund fees, including those for operational costs, management and other administrative expenses. For example, a fund with a 0.75% expense ratio will charge you 75 cents annually for every $100 invested.

Actively managed funds typically have higher expense ratios when compared to index funds, reflecting the cost of active management.

Transfer Fees

Transfer fees come into play when you switch from one broker to another. These fees can arise from various actions, such as switching financial advisors or rolling over retirement accounts.

Load Fees

Load fees are specific to mutual funds and are charged when you buy or sell fund shares. Front-end loads are taken at time of purchase, while back-end loads, or deferred sales charges, diminish over time and may eventually disappear.

Strategies for Lower Investment Fees

Two investors comparing how much they are paying in investment fees.

To minimize fees eating into your returns, it’s essential to employ a range of strategies tailored to your specific finances. These are four common strategies to lower your investment fees.

1. Review All Statements

Regularly reviewing your investment statements can lead to significant savings. This information will help you keep track of any changes in fee structures or unexpected charges, so you can ensure that you are not paying for unnecessary services. With this data, you can decide whether it’s worth it to pay a financial advisor or robo-advisor fees in the first place.

When reviewing your statements, look for patterns in fees, check for unused services and compare costs with other brokerage platforms or services.

To help, create a checklist for statement review that includes:

Identifying each fee type
Confirming the necessity of each service
Comparing fees with industry averages

2. Reduce Your Trading Activity

Depending on the trades you make, you could be paying fees every time you buy or sell an asset. Frequent trading can lead to a pile-up of transaction fees, which chip away at your returns.

By consolidating trades or setting specific trading windows, you can decrease the number of transactions and, consequently, the fees you pay. It’s important to know what fees you’ll be pay before you trade so you can plan your investment frequency.

3. Consider Alternative Investments

Diversifying your portfolio with alternative investments, such as index funds or ETFs, can result in lower fees than actively managed funds, can be a smart move.

For example, the average expense ratio for an actively-managed mutual fund is around 0.34%, whereas index funds and ETFs can fall under 0.05%.

A comparison table of fees from various investment types can help you visualize the potential savings.

4. Work With a Financial Advisor

A financial advisor can help you lower investment fees by recommending low-cost investment options, such as index funds and ETFs, while also negotiating fee reductions with fund providers, consolidating assets to qualify for lower fee structures and providing guidance on cost-effective investment strategies tailored to your financial goals and risk tolerance.

However, before hiring a financial advisor, review the fees you will pay for their services. This can help you determine how they can specifically help you optimize a portfolio while minimizing overall investment fees.

Hidden or Overlooked Investment Fees

Some investment costs are not always easy to spot because they’re buried in the fine print of account agreements, fund prospectuses or trade confirmations. Over time, these hidden fees can quietly eat away at your returns just as much as more obvious costs. These are a few fees to watch for:

Account maintenance fees: Some brokers or retirement account providers charge annual or quarterly fees just to keep your account open. While these may be small on paper, they can add up, especially if you hold more than one account.
Inactivity fees: If you don’t trade or maintain a certain account balance over a set period, some platforms will assess an inactivity fee. This is more common with older brokerage models but can still apply in certain situations.
12b-1 fees: 12b-1 fees are marketing and distribution fees built into the expense ratios of certain mutual funds. While they may seem minor , these annual charges can run up to 1%, but you can avoid them by choosing funds without them.
Currency conversion fees: If you invest internationally, buying and selling assets in foreign currencies can trigger conversion fees, either as a flat cost or as a markup on the exchange rate. These charges can quietly reduce the returns on global investments.
Margin interest charges: If you borrow against your portfolio by trading on margin, you will pay interest on that loan. Rates vary by broker and can be significantly higher than other forms of borrowing, cutting into your overall investment gains.

Knowing where these fees hide is the first step toward avoiding them. Take the time to read the fine print, ask your broker or advisor for a complete fee schedule and compare alternatives. To help, Charles Schwab provides a convenient comparison tool on its website. This can help you eliminate unnecessary costs before they chip away at your returns.

Bottom Line

A couple researching how they could avoid investment fees.

Investment fees may seem small individually, but they can have a meaningful impact on long-term portfolio growth. Understanding the different types of fees and taking steps to minimize unnecessary costs, such as choosing low-cost funds, comparing brokerage fees and reviewing advisory expenses, can help you keep more of your investment returns. By paying attention to costs as part of your overall investment strategy, you can improve your chances of reaching your long-term financial goals.

Tips for Investing

A financial advisor can help optimize your investment portfolio so that you are not spending as much in investment fees. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re curious about how your chosen portfolio could change over time, consider using an investment calculator.