What Is a Brokerage Fee?

Brokerage Fees Explained in Less Than 4 Minutes

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A brokerage fee is a cost a brokerage firm charges to handle transactions and services provided. What’s included in this fee varies by firm, but it’s the firm’s charge for letting you use its platform to invest and manage your transactions. 

Definition and Examples of Brokerage Fees

Brokerage fees look different based on the firm you use for your investments. A brokerage is a company that manages trades of different types of securities, like stocks, bonds, mutual funds, and others.  

A brokerage fee is what such a company charges to handle specific transactions related to your account. For instance, when you’re buying a security through your account, you should receive confirmation from your brokerage about how much that transaction cost you. It should show the cost of buying a security plus any fees associated with the transaction.

How Brokerage Fees Work

Because there are so many different types of brokerage fees, make sure you understand how they’re implemented and what firms can’t do when it comes to fees. Brokers have the right to charge fees for expenses related to your transactions or the services they provide. 

Brokerage fees need to be “fair and reasonable" in compliance with the Securities and Exchange Commission (SEC). Each fee can vary based on circumstances for an individual investor and the fee in question.

Brokerage fees can be charged either per transaction, monthly, quarterly, or annually, depending on how they are implemented and the firm you’re working with. For instance, Schwab Intelligent Portfolios doesn’t have an advisory fee or charge any commissions. But its Premium account does charge a one-time $300 planning fee and a $30 monthly advisory fee. Vanguard charges an annual $20 account service fee for accounts with less than $50,000 in Vanguard assets or with less than $10,000 in Vanguard exchange-traded funds (ETFs) and mutual funds.

Types of Brokerage Fees

When examining brokerage fees, keep in mind the different ways that firms offer services, including:

  • Full Service
  • Discount
  • Online

Full-Service Brokerage Fees

Full-service brokers or financial planners may offer a fee-based service, rather than charging by the transaction, or may work on commissions tied to financial products sold. Full-service brokers provide expert advice and tailored services based on each investor’s needs. Because full-service brokers use humans—not robo-advisors—fees tend to be higher for specific advice based on your particular portfolio. 

Depending on your broker, you could pay a yearly fee and commissions totaling anywhere from less than 1% to more than 2% of your total assets under management (AUM). There also may be a charge for individual trades, depending on the security that’s being managed, and you might be required to have a specific minimum balance to open or maintain your account.

Discount and Online Brokerage Fees

While a full-service broker handles all your money moves for you, a discount brokerage gives you a little more power to initiate these transactions yourself. The cost of trades is low or nonexistent, and the threshold to open an account is minimal. Sometimes, you can start with as little as $0. 

Many discount brokers, like TD Ameritrade, recently acquired by Charles Schwab, and Fidelity, are popular among regular investors.

Many discount brokerages are also online brokerage firms, so you can expect the same type of fees—or lack thereof—from both of these types of platforms.

How To Minimize Your Brokerage Fees

If you’re new to investing or you haven’t reviewed your brokerage fee payments in a while, you might not know what you’re paying. It could be worth taking steps to pay less in fees. 

  1. Check to see what you may be charged. Many fees on brokerage accounts can be avoided if you know how. For instance, see if you have to maintain a minimum account balance or what the cost is for transferring or closing your account.
  2. Switch your account type. If you signed up for a full-service account but don’t want to pay for full service, see if your firm offers less expensive options. Sometimes, brokerages have tiered accounts to entice different types of investors. 
  3. Switch your brokerage firm. If your firm doesn’t offer an account with fees you’re comfortable with, compare options at other firms. Look to see which ones offer the fewest and lowest fees. 

Key Takeaways

  • Brokerage fees come in many different forms, depending on the brokerage firm and the services tied to each fee.
  • You might pay a higher brokerage fee if you go with a full-service broker than if you worked with a discount or online broker. 
  • Minimize fees by finding an account that fits your budget. You may not need or be able to afford a full-service broker.