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We often gnaw at the thought of paying higher commissions or rates. Such costs are unavoidable. That’s given. But overlooking the expenses and fees is another story – and can make or break your investments. We cannot afford to witness our trading capital going down the drain. Majority of the fees are nonnegotiable, such as an advisor’s commission, operating expense, and turnover rates.

Financial Advisor’s Commission

Advisors earn from commissions for providing different financial services such as estate planning and investment management. Although you cannot lower the fees of advisors, investors have more liberty to negotiate the rates with other types of planners. Charges levied by fund managers are more flexible and can be mediated, unlike advisors who levy a particular percentage for managing your assets.

Operating Expense

Mutual funds – and even 401(k) plans – have management fees and operating expenses. Some charges may be subject to negotiation but not the cost of administering a fund and its bookkeeping. Add to the mix the custodian charges, legal fees, and regulatory costs. Those three are nonnegotiable as well. Believe it or not, clients are actually paying for the expense of overseeing the fund, not the manager’s salary. Good thing there are passively managed fund, which is less expensive than actively managed ones.

Turnover Rate

Taxes are inevitable. Sure, we can delay or lower our tax bill. But the fund’s turnover rate is not negotiable. It pertains to the percentage of a fund or a specific holding that has been purchased or sold. In case the fund turned over the holdings every year, profits minus losses are passed on to clients via capital gains taxes. If turnover rate is higher than two within a year, expect a greater tax. Clients can never instruct managers how to invest. However, they can lower the cost and/or risk by picking an index or passive fund. You can opt to maintain high turnover funds in tax-advantaged investments.