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How to Avoid Investment Fees

Byline profile imageEdited by Jeff White, CEPF®
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Byline profile imageEdited by Arturo Conde, CEPF®
Byline profile imageReviewed by Brandon Renfro, CFP®, RICP, EA
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From management fees to load fees, the costs associated with investing can quietly chip away at your returns. They often go unnoticed until they have compounded to make a significant impact. The amount of fees that you pay can be staggering over time, but not all of them are mandatory. Savvy investors can maximize their returns when they know how to avoid investment fees. This is what you need to know. 

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

Investment fees can range from management charges to trading costs. These are five common types of fees to look out for.

Management Fees

 A management fee is the fee you pay for the expertise of a financial advisor or manager to manage your investments. This is typically a fee-based service that charges a percentage of your assets under management (AUM). 

These fees can vary, depending on the type of fee structure your financial advisor uses. 

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 FeeAverage Fee
Percentage-based fee0.59% 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 fee0.25% 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

When you invest in mutual funds or ETFs, you pay an annual fee known as the expense ratio. 

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.

From management and trade fees to expense ratios and load fees, each fee can eat into your returns. By employing strategies such as regularly reviewing statements, reducing trading frequency, using alternative investments and working with a financial advisor, you can optimize your investments to mitigate these fees. 

A financial advisor can help you review your accounts to see where you can eliminate typical investment fees.

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 up to three 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.

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