Typical Asset-Based Fees for Managing Retirement Investments


Wealth management institutions have traditionally offered asset-based fee schedules for the stock accounts of large investors. Gradually, and especially since 1999, brokerages have made this kind of account management available for smaller individual investors as well. From the investor's point of view, it eliminates one substantial source of conflict between broker and client -- stock churning, the excessive buying and selling of equities in a client's account to generate commissions.

Investment Advisory Programs

While each brokerage firm offers its clients programs with details that vary to some degree from others, Morgan Stanley Smith Barney (MSSB) offers three selections that typify other brokers' offerings . You can choose traditional transaction-based pricing, in which you pay a standard commission on stock trades and a full sales load on mutual funds other than no-load funds. If you are an active trader, you may choose a sliding scale commission program, in which you pay commissions monthly in arrears, the commission amount declining as volume increases. You may also choose one of the firm's investment advisory programs, in which you pay an annual fee based on a percentage of the assets in your account. You can open an MSSB investment advisory account with a minimum of only $10,000, less than the minimum required by other large full-service brokerages and investment banks.

Other Asset-Based Fee Schedules

Goldman Sachs, another large investment bank, charges 1.65 percent to 1.9 percent of assets for the first $10 million of assets, declining gradually to around 1 percent for accounts with more than $500 million in assets. Specific fees vary according to the investment objectives of the account. Rather than specifying investment minimums, Goldman has minimum annual fees on accounts. These vary by account type and "are negotiable." JP Morgan and Pinsky offer similar asset-based management fees, as well as performance-based fees based on a percentage of annual gains that exceed index gains. Bank of America Merrill Lynch, UBS and Raymond James also offer asset-based stock account management fees.

A Fast Growing Industry Segment

As brokerages have lowered the investment minimums on stock accounts featuring asset-based fee structures, investors have responded positively. For active traders particularly, the typical 1 percent to 2 percent annual fee can represent a significant saving over fees for individual stock trades, particularly at full-service brokerages where a single trade can still cost more than $100. From 2002 through 2004, stock accounts with asset-based fee structures increased by 61 percent, according to a May 2005 report by Bloomberg Businessweek. By the end of 2004, investors had put nearly $270 billion in these accounts.


Despite the asset-based fee structure's popularity, they have come under regulatory scrutiny. Bloomberg Businessweek reported both the New York Stock Exchange and the National Association of Securities Dealers have brought disciplinary action against "a number" of brokerages for encouraging investors to put money in these accounts when their investment profile clearly indicated this would result in significantly higher brokerage charges than a traditional account with trade-based fees. If you do not have an account large enough to qualify for the lowest 1 percent annual fee -- Goldman's lowest rate requires as much as $500 million under management -- and you do not trade frequently, perhaps even daily, a traditional account with trade-based fees may end up costing you less.

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