Understanding the costs of investments funds (fee-based accounts)

Your annual investment account statement has a new look in 2017. It’ll show information about your fee-based account in a different way, to help you understand what it costs to administer and manage your account.

First off, the statement will show the cost, in dollars, that you paid your advisor and their firm for their services. In a fee-based account you are charged a flat fee or a percentage fee. This fee pays your advisor and their firm for their advice, investment expertise, account management and other services. Also, this cost generally covers transaction fees for buying and selling investments. Your account fee is based on terms negotiated with the advisor at the start of your relationship.

Mutual funds and ETFs must also pay management and operational expenses, including portfolio management. This cost is what makes up a fund’s management expense ratio, often referred to as an M-E-R. These expenses come out of the fund’s returns. They have always been part of the cost of ownership but they don’t appear on your account statement. A fund’s M-E-R is identified in its Fund Facts.

This new reporting is meant to show you the cost of your investments and what you pay your advisor and their firm for their expertise, advice and service. The goal is to give you a clear summary of what it takes to manage your investment account... the advice, services, transactions and operations.   This is all the work that’s done on your behalf to help you achieve your financial goals.

Talk to your advisor to learn more about the costs of buying, owning and selling investment funds in your fee-based account.