Many brokers continue to charge clients a maintenance fee, and fees can really add up over the lifetime of an account. Finding a broker with no maintenance fee should be a priority when opening a new account, but there are also a number of steps that may be taken to avoid these charges.
What is a Maintenance Fee?
A maintenance fee is a fee that a broker charges to maintain your account. Typically they’re only charged if your account balance falls below a stated minimum amount. Maintenance fees are intended to reduce the number of zero balance accounts on a broker’s books, and promote the trading activity of clients.
Maintenance fees are something of a hangover from the days before online discount brokerage, as an online discount broker account realistically costs very little to maintain. Nevertheless, many firms still continue to charge maintenance fees. The good news is that there are a number of ways to substantially reduce or even completely avoid these charges. All other things being equal, it makes sense to opt for a broker with no maintenance fee.
Research the Fees Your Broker Charges
A number of excellent firms now charge no maintenance fee whatsoever. Be sure to research all the firms you’re considering thoroughly and check whether they charge a maintenance fee before you sign up with a broker. It makes sense to use a comparison site for your initial research as many offer timesaving tools for comparison across a wide range of account features, but ultimately you need to check the broker’s own website and paperwork thoroughly, as it is the broker’s terms that you will be bound by.
It goes without saying that brokers don’t tend to advertise their maintenance fees, so be sure to read the small print and speak to a customer support representative if you’re still unclear.
Maintenance Fees Tell You About a Broker
The decision of a firm to charge a maintenance fee and the threshold at which they do so is actually telling you something useful about the brokerage and the type of service they are likely to offer. Consider a firm that charges a fee if you don't maintain an account balance of $50,000. Such a broker is evidently trying to attract clients with larger account balances and a long term investment horizon, and not active speculative traders using highly leveraged capital. That means that the broker's product offering - their charting and execution platforms, the tools and resources they provide, and the research they offer - will all be focused on long term investors.
Broker Maintenance Fees and Inactive Accounts
Just to complicate things, another common charge is an ‘inactivity fee’, and brokers often treat the two charges as one and the same (they are, after all, both designed to reduce the number of dormant accounts). This means that you might be charged a maintenance fee if your account does not meet the stipulated activity requirements within a month. These requirements tend to take one of three forms; a specified number of trades or ‘round-trips’ must be completed, a specified volume or number of shares/contracts must be traded, or a certain minimum amount of commission must be generated by the account.
One of the real dangers with inactivity fees is that they tend to encourage unnecessary trading to meet the activity requirements. You don’t want to be in a position where you’re making trades just to generate commissions and avoid a $10 fee – the cost if the trade may be far more than the fee.
Consider Small or New Firms
Although there are many advantages to trading through a large and established broker, the industry is highly competitive and it is newer upstart firms that will be more eager to secure your business and therefore more likely to waive account fees. Consider a new firms when comparing brokers, but be sure to perform due diligence to check that the broker also meets all the necessary criteria to ensure the security of your funds. Similarly, look for established firms to venture into a new product offering, where they may waive fees in order to attract clients and gain market share.
Tax Free is Maintenance Fee Free
Tax Free Savings Accounts (TFSAs) are almost universally free from maintenance fees, so these can be a great choice depending on your investment goals. Of course, they're also tax free!
Monitor Your Account Balance Carefully
Many brokers offer small minimum balances as a headline rate to attract clients, but it’s easy to get caught out a few months down the line if your balance falls below the required minimum.
Once you’ve opened an account with a broker, be sure to keep track of your account balance. Although maintenance fees are charged monthly, it’s usually the case that you must maintain the minimum balance on a day-to-day basis in order to avoid fees. This means that you must have a mechanism for checking your balance every single day, even if you’re a relatively passive investor. A simple way to manage this situation is to aim to fund your account by more than is required, although this is not always possible for investors with small amounts of capital.
Link Your Brokerage Accounts to Save Fees
One final tip if you have multiple accounts is to link them. If you have an individual retirement account, a day trading account, or trust accounts held for family members, then transferring all of these to the same brokerage firm will often induce them to waive any maintenance fees. Unfortunately it can also vastly complicate the process of choosing a broker, as you’ll be looking for a firm that is able to meet all your diverse range of different requirements across multiple accounts. You will need to consider your own personal situation and financial goals carefully in order to decide whether this is the right choice for you.
With the rising number of firms in this competitive industry in recent years, it has become far easier to find a suitable brokerage solution without the need to pay maintenance fees. If you can’t find a suitable zero-fee broker then the techniques described above should help to ensure that you never get charged for account maintenance, and that your trading profits remain on your bottom line.
About the Author: Nick Flyte is a regular contributor and editor at BestBrokerDeals.com, a leading resource for online broker promotions providing a wide range of information and tools to research and compare discount brokerage firms.