Sometimes it feels as if unexpected fees are hidden everywhere.
History
Prior to May 1, 1975, brokers’ commissions were fixed. It could cost anywhere from $45 to hundreds of dollars in commissions to buy or sell shares, usually based on the total dollar value of the shares involved.
As a result, starting in 1975, discount brokerages appeared. Costs kept declining, and starting after the early 2000s, no fee brokers proliferated. Nowadays it is common now to be able to buy and sell stocks online wih no commission.
However
With the lowering or elimination of commissions, brokers faced a loss of income. Some automating of processes allowed lower costs. However sometimes it seems brokers are searching for actions they could tack fees onto.
This is why commissions still apply in many cases when transacting using a live person.
Do It Yourself, or Get Advice
For those who want to handle their own investing decisions, no fees are simple and easy to accomplish for simple buys and sells. However there are always pitfalls.
Fees and commissions exist for people who want or need advice or personal attention.
A recent discovery
My IRA at a custodian/broker does not charge for buying or selling mutual funds in my IRA. When I first invested, I allocated IRA funds in various mutual funds for diversification purposes.
Now, as I am subject to RMDs, I annually withdraw funds as a distribution. Sometimes I wish to consolidate money into fewer mutual funds. If I wish to transfer funds and close out a fund position, I find I am subject to a fund closure fee. While not terribly significant, it is annoying to find a fee where one did not exist previously. And these fees add up. Beware.
A Surprising Result
Academic researchers opened accounts with several online brokers. They made 85,000 trades in 128 different stocks simultaneously with five different brokers, all of which offered zero commission trading. There turned out to be a “very large variation” in prices, sometimes as much as 10 times in one direction or another. Depending on the relationship and agreements between brokers and market makers, cost varied significantly, affecting customer results. Therefore, it is obvious that not all brokers are the same.
What unexpected results have you encountered? Let me know here.
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