What is a 'Brokerage Fee'
A brokerage fee is a fee charged by an agent or agent’s company to conduct transactions between buyers and sellers. The broker charges the brokerage fee for services such as purchases, sales, and advice on the transaction, negotiations or delivery. There are many types of brokerage fees charged in various industries such as stocks, insurance, realty or delivery services.
BREAKING DOWN 'Brokerage Fee'Brokerage fees are based on a percentage of the transaction, a flat fee or a combination of the two fees. It is also known as a broker fee. The industry and the type of broker selected determine the brokerage fee a customer pays.
In the real estate industry, a brokerage fee is a flat fee charged to the buyer, the seller or both. A mortgage broker helps potential borrowers find and get approval for mortgage loans.
In the insurance industry, a brokerage fee is a cost a broker charges for services. The broker finds the best insurance policies to meet a customer’s needs. In some cases, brokers may collect fees from both the sellers and buyers of insurance.
In the stock industry, a brokerage fee is a cost an investor pays when buying and selling trades or to keep an account. The main three types of brokers that charge brokerage fees are full-service, discount and online.
Full-service brokers offer a range of services such as estate planning, tax advice and personal advice either in-person or over the phone. They offer a large choice of products. However, they are the most expensive type of broker.
The standard commission fee is 1 to 2% of a client’s assets. For example, Tim wants to purchase 100 shares of Company A at $40 per share. If the broker charges a 2% brokerage fee to process the trade, the cost of trade would be $4,080, $40 x 100 shares = $4,000. $4,000 x .02 = $80. $4,000 + $80 = $4,080.
A 12b-1 fee is a recurring fee that the broker receives for selling a mutual fund. The fees range from 0.25 to 0.75% of the total value of the trade. Annual maintenance fees range from 0.25 to 1.5% of the assets.
Discount brokers charge lower fees than full-service brokers do. They charge a flat fee for each trade transaction, but they do not offer personal advice and offer a narrower choice of products. The per-trade flat fee ranges from $5 to $30 per trade. Account maintenance fees are usually 0.5%.
Online brokers are the least expensive type of broker. They allow investors to buy and sell trades online. They offer limited access to customer service. The per-trade flat fee ranges from $5 to $19.95 per trade. Account maintenance fees range from $20 to $50.
How to Reduce Fees
Investors can reduce account maintenance fees by comparing brokers, fees and the services provided. Per-trade fees can be avoided by buying no-load mutual funds or fee-free investments. Read the fine print or fee schedule, and ask questions about the fees charged.