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Annual Fee?!

This article was written by in Investing. 2 comments.

My previously-mediocre-but-not-horrible discount brokerage firm decided to start charging an annual fee… a fee higer than some full-service brokerages. I’m high-tailing it out of there ASAP, and I’m looking to do it without any tax implications. Although, even if I have to sell, the tax burden shouldn’t be too bad.

So, with the several thousand dollars in that account, I’m most likely looking at Scottrade. They have no annual fees and seem to be generally non-evil.

Currently, the entirety of my brokerage account is invested in AIVSX, American Funds’ “Investment Company of America” fund, which seems to do a good job of matching the S&P 500, but not much else. It also has a pretty ugly 5.25% up-front load fee, which pisses me off about as much—or more—than annual fees. In effect, every time I bought shares of this fund, I paid 5.25% higher than the market price per share, with the extra going to the broker. That also means that (put simply) if the fund was getting a 10% yield, it was only a 4.75% improvement over what I paid.

Fees like this on the smaller investors, like me, bug me to no end. It’s obvious the brokerage firms prefer the clients with large sums to invest. They are the people who make the brokers rich. The brokers should accept that (instead of giving the top investors breaks) and leave the little guys alone.

Updated October 14, 2016 and originally published September 29, 2004.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

avatar 1 Luke Landes

This is exactly my point of view, as well. The investment from AIVSX came originally as a UGMA from my father, originally about ten years ago. For a few months, I was putting money into this investment once a month… until I realized I was paying a 5.25% premium. So I no longer invest in that fund. I just want it to sit somewhere where it’s not going to accumulate annual inactivity fees, and my active investing will probably be in VFINX. My Roth IRA is in TCEIX with TIAA-Cref, but that’s limited to $3,000 this year and $3,500 next year.

avatar 2 Anonymous

Don’t pay load fees. Don’t pay load fees. Don’t pay load fees. Write 100 times “I will not buy load mutual funds.”

Load funds underperform no-load funds by roughly the amount of the load. On the average. But of course, your investments will never be average!

Better yet, go passive, and invest using index funds, whose performance, on the average, is better than the actively-managed funds by — you guessed it — the amount of the difference in the expense ratio, and better than about 84 percent of the actively managed funds at any given time. Don’t be an investing Girlie-Man!

Read Burton Malkiel’s classic book A Random Walk Down Wall Street.