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BD Fees Confuse Investors: NASAA

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Investors are confused about the fees charged by brokerage firms to service and maintain their accounts, with 30% of investors mistakenly believing that their BD levies no such charges, according to a just-released report commissioned by the North American Securities Administrators Association.

The just-released report, “Investor Confusion About Brokerage Service & Maintenance Fees,” was conducted via telephone from Jan. 8 to 25 by the independent research firm ORC International. It surveyed 1,072 investors with a brokerage account across the continental United States regarding their awareness of service and maintenance fees charged by brokerages over the lifetime of an account.

The research “shows that investors are confused and unaware of how much their brokerage firm charges to serve and maintain their investment accounts,” said William Beatty, Washington securities director and president of NASAA, in releasing the research. “Investors tell us fees are important and they want to see improved disclosure.”

While brokerages routinely charge fees to serve and maintain brokerage accounts, nearly one-third (30%) of investors mistakenly believe their firm had no such charges and one-quarter (25%) indicated they did not know whether they were being charged in addition to investment commissions, the report found.

What’s more, of the investors who knew they are being charged, more than half (52%) indicated that they did not know the amount they pay in fees to serve and maintain their account.

NASAA spokesman Bob Webster told ThinkAdvisor that the report focuses on the “lack of investor awareness of service/maintenance fees in general,” whereas NASAA’s report released last April highlighted the disparities in broker-dealer fees.

 Other highlights from the just-released study include:

  • Of all investors surveyed, nearly three-quarters (71%) indicated that they did not know the amount of additional service and maintenance fees their brokerage firm charges for services they might need in the future, such as transferring their account to a different brokerage or obtaining documents from their brokerage.

  • Nearly all investors (81%) said the amount of fees they pay for services and account maintenance over the lifetime of their account is important to them.

  • Close to eight in 10 investors (79%) would like their brokerage firm to provide a separate chart that lists its service and maintenance fees in a format that is simple to read and understand. Roughly two in three investors (65% ) would prefer a direct link on their brokerage firm’s website to a chart of service and maintenance fees.

  • Nearly nine out of 10 investors (88%) would like to see brokerage firms use standardized and uncomplicated terms to describe service and maintenance fees in order to help compare fees between different firms.

NASAA announced in September that its Broker Dealer Section had convened a group to work toward developing “standardized and uncomplicated” broker-dealer fee disclosure. The working group includes the Financial Industry Regulatory Authority, Securities Industry and Financial Markets Association, the Financial Services Institute, as well as large brokerage firms LPL Financial, Wells Fargo, Edward Jones, Signator Investments Inc. and Prospera Financial Services.

Webster told ThinkAdvisor Wednesday that the working group hopes to have a “model fee chart” developed by NASAA’s annual conference in September.

— Check out Most Advisors Don’t Know Their Own Fees on ThinkAdvisor.


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