"How Much Hidden Fund Fees Cost You"

"...many shareholders are unaware of the hidden fees that are being paid to large, traditional brokers for overseeing mutual fund investments in their accounts.

...not all mutual funds have the same fee structure. Funds purchased through large brokerages are subject to a number of extra fees, some of which are hidden. These fees are typically paid to encourage brokers to sell certain funds to their customers, assuming they are suitable investments.

...The Hidden Fees

Shareholder servicing fee. Under current regulatory rules, a mutual fund can pay a broker up to 0.25 percent of your assets for "servicing" your account. If you have a $30,000 account balance, that's $75 a year.

Revenue-sharing fee. This is a fee the management company of each mutual fund pays the broker for "marketing." It can range between 0.10 percent and 0.40 percent of your assets, so a 0.20 percent fee is generating $60 a year from a $30,000 account. This is a hidden cost, but you can be sure you're paying it.

The Hidden Cost

This may not sound like much money, but these fees add up to more than 50 basis points, or 0.58 percent of your assets each year, on average. If you expect to earn 5 percent a year on your investments, remember that these extra fees mean you are losing out on 10 percent of whatever that 5 percent return equals in asset gains.

And these fees are of course on top of sales commission or other ongoing fees you paying your broker for advice and counsel.

...the exact amounts are typically hidden or poorly explained.

...you probably need to be a securities lawyer to understand what's really going on.

Most of the fee information is typically in a fund prospectus' statement of additional information—the last place investors look, if they even review fund materials.

Niels Holch


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