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What is a fee?

A fees is an expense investors pay to own a fund, receive financial advice, create transactions, buy/sell funds, or keep an investment account with a brokerage.

One example of a fee is a fund’s net expense ratio. If a fund’s expense ratio is 1% and an investor has $100 in the fund, $1 is debited from the account, leaving the investor with $99. Financial advisors charge fees for their professional advice: Some advisors charge by the hour or by assets under management, (AUM). For example, if an advisor had a 1% fee for total assets under $100,000, and the investor had $99,000, then $990 is debited from the account.

Transaction fees are expenses investors pay brokerages to fulfill trades on their behalf. These fees are becoming less common as many institutions implement commission-free trading. The same is true for account fees, or the cost of holding an account at a brokerage. Other fees include front loads and back loads, which are commissions used by advisors. Front loads are sales charges when an investor first buys a fund while back loads are fees incurred when an investor sells a fund.