How to Lower Your Investment Fees
Calculate your total fees., Ask questions about your fees., Identify which fees can be lowered., Determine an industry standard., Schedule a meeting with your financial professional., Request lower fees.
Step-by-Step Guide
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Step 1: Calculate your total fees.
You can find data on the fees you're being charged in a number of ways, but the simplest and most straightforward way is to review the account statements you receive and make a projection.Generally, you'll see two kinds of fees on your statements.
Some will be transaction fees, which are only charged when you buy or sell a stock or mutual fund.
Others are ongoing fees, such as account maintenance fees or management fees, which you are charged on a regular basis.
Both types of fees reduce the value of your investment.
Ongoing fees can have a significant impact over time, particularly if you have a low rate of return on your investments.
Ongoing fees typically are expressed as a percentage of your investment portfolio, which means as your investment increases, the fees will increase as well. -
Step 2: Ask questions about your fees.
If you don't understand any of the fees that you're being charged, your broker should be able to explain them to you more thoroughly.
You need to know exactly what the fee is and why you were charged it.Even though your account statements are the easiest way to learn about your fees, those statements may include jargon or abbreviations that isn't clear.
This is especially true if you are new to investing.
When you ask your broker about the fees, make sure they communicate to you in a way you'll understand.
You can try the "explain it to me like I'm six years old" approach to ensure your broker will tell you the information you need without using a lot of confusing terminology or industry jargon. , Once you've figured out exactly what fees you're being charged and why, you can isolate the ones that you can try to negotiate down.
Three types of fees typically can be negotiated down: management fees, transaction fees, and commissions.Your management fee is a percentage of your total investment, which means as your investment grows, the fee also will get larger.
A percentage that seems low when you're just starting out can cause you to lose a lot of money in the long run, so it's in your best interests to get this rate as low as possible, as soon as possible.
Transaction fees typically are pretty low, and if you don't make a lot of trades they shouldn't be a big concern.
However, if you're buying and selling left and right, these fees can add up.
In that situation, it makes sense to try to negotiate a lower rate.
If you've invested in (or want to invest in) a mutual fund that is front-end loaded, you'll be paying a commission (or "load") up front when you open your account.
You can always choose a no-load fund to avoid this cost entirely, but if you can't find one that suits your needs, you can at least try to negotiate this fee down. , It's rare for people not professionally involved in the finance sector to have much of an idea how much they should be paying for investment services.
You must equip yourself with this information before you attempt to negotiate for lower investment fees.Management fees, retainers, and hourly rates vary dramatically in the finance industry, so you'll have to do some research to figure out how the fees you're being charged stack up to what others charge.
Keep in mind that the amount you pay for someone else to manage your investments depends on how much work that person does and how much you're willing (and able) to do yourself.
If you don't mind educating yourself on the way the market works, you can potentially do much of the work your broker does for you, which gives you room to negotiate even lower rates.
When you're looking at fees for different brokerage firms, only compare your current broker's fees with those charged by similar brokers at brokerage firms of a similar size and age.
This gives you a more reasonable basis of comparison., If you want to negotiate for lower fees, it's important to have a conversation with your broker or advisor directly in person.
Set the meeting far enough out that you have time to get together the materials you need.When you go into the meeting, it's important that you are knowledgeable, both about the fees you're being charged and about the industry standard.
If you found articles or other material through your research that supports your argument for lower fees, bring it along so your broker can review it and better understand where you're coming from.
You also should bring a tablet or some paper and a pen so that you can take notes during the negotiation.
If you and your broker reach an agreement, you'll want to follow up in writing to confirm the agreement so you have a record. , When you sit down with your broker or financial advisor, let them know up front the purpose for your meeting.
If they are absolutely unwilling to negotiate your fees, you'll save yourself a lot of time and effort.Be confident, certain, and knowledgeable when you ask your broker to lower your investment fees.
You've done your homework, and you know that you're paying higher fees than you should.
In some cases, your broker won't have any trouble giving you a reduced rate – it's just a matter of asking.
In others, your broker may be angry or insulted that you would try to get their services more cheaply.
Keep in mind that your relationship with your financial advisor is just like any other relationship.
When you come in to ask for lower fees, there's a chance your advisor may take it personally, or think you are unhappy with them.
Make it clear that this isn't the case. -
Step 3: Identify which fees can be lowered.
-
Step 4: Determine an industry standard.
-
Step 5: Schedule a meeting with your financial professional.
-
Step 6: Request lower fees.
Detailed Guide
You can find data on the fees you're being charged in a number of ways, but the simplest and most straightforward way is to review the account statements you receive and make a projection.Generally, you'll see two kinds of fees on your statements.
Some will be transaction fees, which are only charged when you buy or sell a stock or mutual fund.
Others are ongoing fees, such as account maintenance fees or management fees, which you are charged on a regular basis.
Both types of fees reduce the value of your investment.
Ongoing fees can have a significant impact over time, particularly if you have a low rate of return on your investments.
Ongoing fees typically are expressed as a percentage of your investment portfolio, which means as your investment increases, the fees will increase as well.
If you don't understand any of the fees that you're being charged, your broker should be able to explain them to you more thoroughly.
You need to know exactly what the fee is and why you were charged it.Even though your account statements are the easiest way to learn about your fees, those statements may include jargon or abbreviations that isn't clear.
This is especially true if you are new to investing.
When you ask your broker about the fees, make sure they communicate to you in a way you'll understand.
You can try the "explain it to me like I'm six years old" approach to ensure your broker will tell you the information you need without using a lot of confusing terminology or industry jargon. , Once you've figured out exactly what fees you're being charged and why, you can isolate the ones that you can try to negotiate down.
Three types of fees typically can be negotiated down: management fees, transaction fees, and commissions.Your management fee is a percentage of your total investment, which means as your investment grows, the fee also will get larger.
A percentage that seems low when you're just starting out can cause you to lose a lot of money in the long run, so it's in your best interests to get this rate as low as possible, as soon as possible.
Transaction fees typically are pretty low, and if you don't make a lot of trades they shouldn't be a big concern.
However, if you're buying and selling left and right, these fees can add up.
In that situation, it makes sense to try to negotiate a lower rate.
If you've invested in (or want to invest in) a mutual fund that is front-end loaded, you'll be paying a commission (or "load") up front when you open your account.
You can always choose a no-load fund to avoid this cost entirely, but if you can't find one that suits your needs, you can at least try to negotiate this fee down. , It's rare for people not professionally involved in the finance sector to have much of an idea how much they should be paying for investment services.
You must equip yourself with this information before you attempt to negotiate for lower investment fees.Management fees, retainers, and hourly rates vary dramatically in the finance industry, so you'll have to do some research to figure out how the fees you're being charged stack up to what others charge.
Keep in mind that the amount you pay for someone else to manage your investments depends on how much work that person does and how much you're willing (and able) to do yourself.
If you don't mind educating yourself on the way the market works, you can potentially do much of the work your broker does for you, which gives you room to negotiate even lower rates.
When you're looking at fees for different brokerage firms, only compare your current broker's fees with those charged by similar brokers at brokerage firms of a similar size and age.
This gives you a more reasonable basis of comparison., If you want to negotiate for lower fees, it's important to have a conversation with your broker or advisor directly in person.
Set the meeting far enough out that you have time to get together the materials you need.When you go into the meeting, it's important that you are knowledgeable, both about the fees you're being charged and about the industry standard.
If you found articles or other material through your research that supports your argument for lower fees, bring it along so your broker can review it and better understand where you're coming from.
You also should bring a tablet or some paper and a pen so that you can take notes during the negotiation.
If you and your broker reach an agreement, you'll want to follow up in writing to confirm the agreement so you have a record. , When you sit down with your broker or financial advisor, let them know up front the purpose for your meeting.
If they are absolutely unwilling to negotiate your fees, you'll save yourself a lot of time and effort.Be confident, certain, and knowledgeable when you ask your broker to lower your investment fees.
You've done your homework, and you know that you're paying higher fees than you should.
In some cases, your broker won't have any trouble giving you a reduced rate – it's just a matter of asking.
In others, your broker may be angry or insulted that you would try to get their services more cheaply.
Keep in mind that your relationship with your financial advisor is just like any other relationship.
When you come in to ask for lower fees, there's a chance your advisor may take it personally, or think you are unhappy with them.
Make it clear that this isn't the case.
About the Author
Michelle Webb
Enthusiastic about teaching hobbies techniques through clear, step-by-step guides.
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