A Breakdown of Investment Management Fees (2024)

There are a myriad of articles that take a stab at explaining investment management fees. The reality is that fees vary significantly based on what is being bought or sold and by whom (i.e. registered investment advisor or broker/agent). I’d like this short article to serve as a practical reference to the world of investment management fees. It is not meant to be a long detailed explanation of every single fee out there -- my goal isn’t to put you to sleep. If you would like more detail, then by all means Google the specific terms I mention and get your hands dirty. I am simply seeking to arm you with the knowledge to make wise financial transactions and protect you against unnecessary and excessive fees. Sound good? Let’s dive in…

To keep things simple, we will explore two main layers of fees: External and Internal. External fees occur outside the financial product and internal fees occur inside the financial product as an operating expense.

External Fees

Advisor (Management) Fees

If you are purchasing your investment through a financial advisor or investment professional, they will likely charge you a fee to have them manage your investments. The industry typically refers to this as an investment management fee and averages between 1-2% of assets (i.e. A $100,000 investment could cost you between $1,000 - $2,000 annually). In recent years, thanks to technology and higher overall awareness, these fees have fallen closer to an average of 1%. Investment advisors most often have a fee schedule that includes breakpoints based on the overall AUM (investment Assets Under Management) that the client entrusts the advisor with. As the amount of investment AUM reaches these breakpoints, the fee is reduced (much like the marginal tax brackets in the U.S., but in reverse).

Important Takeaways:
  • If your investment advisor is not transparent with this fee you can look up their Form ADV Part 2 at https://adviserinfo.sec.gov/. This form provides a full-disclosure of the fee structure which can be found under “Item 5: Fees and Compensation”.
  • This fee is typically negotiable with the advisor.
  • These days, you should not be paying more than 1% on investments. If you are being charged more, you better be receiving personalized financial planning services.
Sales Fees (commission-based)

These costs are only associated with agents/brokers who sell financial products as they serve as their commission. Here is a short list of such fees:

  • Load Fees: the agent receives a large commission up front when the investment is purchased (front-loaded) or sold (back-loaded). These fees are most often between 3-8%. Examples include insurance/annuity products and A-share mutual funds.
  • On-going sales fee: the agent receives a reduced commission relative to the load fee (1-3% most of the time), but the fee is paid annually for the duration of the investment. While they appear to be lower than front-loaded fees, these can ultimately be more expensive when held over a longer duration. Examples include insurance/annuity products and C-share mutual funds.
Important Takeaways:
  • Agents/brokers selling commission-based products are not held to the fiduciary standard of doing what is best for the client. They are instead held to a suitability standard that provides a lot of wiggle room, meaning you may not be buying a product that is right for you holistically.
  • Commission-based financial products provide many conflicts of interest. An agent/broker may be incentivized to sell you one product over the other because he/she may receive a higher commission.
Trading Cost (External)

This is a custodial fee for completing a buy or sell order of a security trade. This cost varies based on the company holding your investments. Low-cost custodians like TD Ameritrade, Schwab, Fidelity, and E*Trade will often times charge fees of less than $10 per trade.

Important Takeaway:

Each custodian has a list of securities that they do not charge trading fees to buy or sell. These can be found by searching for no cost ETFs, index funds, or mutual funds with your current custodian. This is a huge benefit for investment accounts with low balances.

Internal Fees

Expense Ratio: An annual fee that all funds charge, and one that shareholders automatically pay through a deduction from their investment balance. This fee can range between 0.05% and 2%. Here are a couple general rules with expense ratios:

  • Passively managed funds have lower expense ratios than actively managed funds (Read more about this in our article Active vs Passive Investing)
  • International and emerging markets funds will have a higher expense ratio than domestic funds
12B-1 Fees

Fees that the mutual fund manager may charge for marketing and distribution of its fund. It is most often used as a disguised commission for the selling broker/agent. This fee is becoming less often incorporated into funds but is still worth noting as the advisor compensation portion can be between 0.25-0.75% annually. While this fee is often times included as part of the overall expense ratio, it’s worth making sure that the funds you own don’t have these fees included or at least aren’t excessive. You can read more about these fees here.

Trading Costs (Internal)

Investment managers incur trading costs from buying and selling individual positions within the fund. This cost can go up based on the bid-ask spread (description below) of the stock and the number of trades inside the fund. Internal trading costs are unavoidable, so don’t worry about trying to find ways to minimize them.

If you’re not familiar with the concept of a bid-ask spread, let’s pretend you’re selling a tent on eBay. If you’re selling the only tent of its kind, you could think it’s worth $500 (your ask) but buyers may bid only $300. Due to it being the only tent of its kind, there is not enough on the market to establish a market price and therefore has a larger bid-ask spread. If the tent is a popular item sold by many others, there is a purchase history of what the tent is going for and a clearer picture of what the tent is worth, resulting in a smaller bid-ask spread.

Insurance Product Costs

These costs are only associated with insurance-based investment products in the form of an annuity, or an investment inside a life insurance policy. Insurance comes with a premium so these fees can really add up! For example, most variable deferred annuities have all-in costs of 2.5% to 4% per year, not including all the sales commissions that are often attached to them. There are four main types of charges within insurance products:

  • Insurance related charges that include mortality and expense (M&E) fees and administrative fees.
  • Surrender charges that are charged if you decide you want out of your investment early. These can be excessive and are not often disclosed clearly to the client.
  • Rider charges for any additional “benefits” that you would like baked into your product. The most common one here tends to be a guaranteed income rider, because everyone is a sucker for “guaranteed” income. However, you’ll pay the price for this and it very rarely ever pays off.
  • Investment management fees that the insurance company charges on the investments within the insurance product. In addition to these fees, you’ll also still be responsible for each of the funds’ expense ratios!
Important Takeaway:

Because of all these additional layers of fees, it is very rare that an investment in an insurance product will turn out to be a wise purchase.


Due to the large range in potential fees, your investment success can largely depend on your ability to minimize the expenses associated with your investments. While you may feel overwhelmed by all these different types of fees, the most important thing is to simply be aware of them. That way you can ask the right questions to a professional and make sure they are fully disclosing all the fees related to your investments.

A Breakdown of Investment Management Fees (2024)


What is the management fee breakdown? ›

The management fees may or may not cover not only the cost of paying the managers but also the costs of investor relations and any administrative costs. Fee structures are usually based on a percentage of assets under management (AUM). Fees tend to range from 0.10% to more than 2% of AUM.

What are the fees for investment management? ›

The management fee varies but usually ranges anywhere from 0.20% to 2.00%, depending on factors such as management style and size of the investment.

Is a 1% management fee high? ›

Many financial advisers charge based on how much money they manage on your behalf, and 1% of your total assets under management is a pretty standard fee. But psst: If you have over $1 million, a flat fee might make a lot more financial sense for you, pros say.

Can I write off investment management fees? ›

Are investment management fees tax deductible? No, they aren't – at least not until 2025. The Tax Cuts and Jobs Act (TCJA) enacted major changes to what investors can and cannot claim on their tax returns.

What is a breakdown of fees? ›

Breakdown of Costs means a document making part of the Account Statement which contains an itemized list of all fees, costs and other payment obligations related to the payment services, payable by the Client being a client qualifying as consumer or micro-enterprise to the Bank.

How to calculate management fees? ›

Calculating management fees is simple; it is based on a percentage of your total assets under management (AUM). This annual fee is typically quoted and applied monthly or quarterly. For example, if you have invested $10,000 with an annual fee of 2.00%, you would pay a fee of $200 per year.

Is 2% fee high for a financial advisor? ›

Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.

What are management fees in investment period? ›

Management fees are typically 1.5-2.0% of aggregate committed capital during the investment period, though this can vary depending on the investment strategy, the size of the fund, and the size of an Investor's commitment.

Are investment management fees worth it? ›

It will also depend on how much money you have to invest. If you have strong financial acumen and experience investing, then you might be fine investing your own money. If you have less than $50,000 of liquid assets, then you may also want to consider going at it on your own, as the fees might not be worth it.

What does Charles Schwab charge for a financial advisor? ›

Schwab and CSIM are subsidiaries of The Charles Schwab Corporation. There is no advisory fee or commissions charged for Schwab Intelligent Portfolios.

What is a typical management fee percentage? ›

Most property management companies charge a monthly fee of between 8% – 12% of the monthly rent collected. If the rent on your home is $1,200 per month the property management fee would be $120 based on an average fee of 10%.

What is an acceptable management fee? ›

Management fees, whether paid as a mutual fund expense ratio or a fee paid to a financial advisor, typically range from 0.01% to over 2%. Generally, the range in fee amount is due to management strategy.

Where do I claim investment management fees? ›

Simply go to “Statement of fees charged to your account” and look for “Fees incurred.” Remember that management fees are only tax deductible when incurred in non-registered accounts. Talk to a tax professional to ensure you're taking advantage of all the tax deductions and credits available to you.

Are financial advisors worth it? ›

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

Are management fees considered portfolio deductions? ›

No, they aren't. At least not anymore. The Tax Cuts and Jobs Act (TCJA) of 2017 put an end to the deductibility of financial advisor fees, as well as a number of other itemized deductions. As of January 2018, these fees no longer contribute to reducing your tax bill.

What is the management fee structure? ›

Management fees, whether paid as a mutual fund expense ratio or a fee paid to a financial advisor, typically range from 0.01% to over 2%. Generally, the range in fee amount is due to management strategy.

What is the management fee ratio? ›

The management expense ratio (MER) – also referred to simply as the expense ratio – is the fee that must be paid by shareholders of a mutual fund or exchange-traded fund (ETF). The MER goes toward the total expenses used to run such funds.

What is the actual management fee? ›

This fee is specifically for asset management services and does not include other expenses related to the fund. Typically, it's calculated as a percentage of the fund's average assets under management (AUM). For example, a fund with a 1% management fee will charge $1,000 annually for every $100,000 of AUM.


Top Articles
Latest Posts
Article information

Author: Jerrold Considine

Last Updated:

Views: 5301

Rating: 4.8 / 5 (78 voted)

Reviews: 85% of readers found this page helpful

Author information

Name: Jerrold Considine

Birthday: 1993-11-03

Address: Suite 447 3463 Marybelle Circles, New Marlin, AL 20765

Phone: +5816749283868

Job: Sales Executive

Hobby: Air sports, Sand art, Electronics, LARPing, Baseball, Book restoration, Puzzles

Introduction: My name is Jerrold Considine, I am a combative, cheerful, encouraging, happy, enthusiastic, funny, kind person who loves writing and wants to share my knowledge and understanding with you.