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What is 'Brokerage Fee'

A brokerage fee is a fee charged by a broker to execute transactions or provide specialized services. Brokers charge brokerage fees for services such as purchases, sales, consultations, negotiations, and delivery. There are many types of brokerage fees charged in various industries. Examples include fees charged include financial services, insurance, real estate, and delivery services.

BREAKING DOWN 'Brokerage Fee'

Brokerage fees, also known as broker fees, are based on a percentage of the transaction, as a flat fee, or a hybrid of the two. Brokerage fees vary according to the industry and type of broker.

In the real estate industry, a brokerage fee is typically a flat fee or a standard percentage charged to the buyer, the seller, or both. Mortgage brokers help potential borrowers find and secure mortgage loans; their associated fees are between 1% and 2% of the loan amount.

In the insurance industry, a will charge fees for their services. Brokers find the best insurance policies to meet customers' needs. In some cases, brokers may collect fees from both sellers and buyers of an insurance policy.

In the financial securities industry, a brokerage fee is charged to facilitate trading or to administer investment or other accounts. The three main types of brokers that charge brokerage fees are full-service, discount, and online.

Full-Service Brokerage Fee

Full-service brokers offer a wide range of products and services such as estate planning, tax consultation and preparation, and other financial services either in-person or over the phone.  As a result, they earn the largest brokerage fees.

The standard commission for full-service brokers are between 1% to 2% of a client’s managed assets. For example, Tim wants to purchase 100 shares of Company A at $40 per share. Tim's broker earns a commission of $80 for facilitating the transaction ($40/share x 100 shares = $4,000, $4,000 x .02 commission = $80. When the commission is added, the total  cost of the trade is $4,000 + $80 = $4,080).

A 12B-1 fee is a recurring fee that a 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 Brokerage Fee

Because discount brokers offer a narrower selection of products and provide no investment advice, they charge lower fees than full-service brokers. Discount brokers charge a flat fee for each trade transaction. The per-trade flat fee ranges between $5 to $30 per trade. Account maintenance fees are usually around 0.5%.

Online Brokerage Fee

Online brokers have the least expensive brokerage fees. Their primary role is to allow investors to conduct online trading. Customer service is limited. The per-trade flat fee ranges between $5 to $19.95 per trade. Account maintenance fees vary between $20 to $50 per account.

Reduction of Brokerage Fees

Investors can reduce account maintenance fees by comparing brokers,  their provided services, and their fees. Buying no-load mutual funds or fee-free investments can help avoid per-trade fees. It is important to read the fine print or fee schedule and ask questions about any fees charged.

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