What’s the Deal with Broker-Dealer Fees?

~ By Gerald Rome, Colorado Securities Commissioner ~

New research from our association of state securities regulators finds that a surprising number of investors were either unaware of the fees being charged, or didn’t understand the reasons why charges were added to their accounts. There are pretty good reasons for this confusion.

Gerald Rome, Securities Commissioner

What we discovered was that some firms disclose fees in documents as lengthy as seven full pages, some disclose fees only when you open an account even though they may kick in at various later dates, and many only post them on the company website without providing them directly to customers. We also discovered that many firms reaped a significant windfall through charging high markups for services delivered to their customers – one company even charged a $500 fee to investors who simply wanted to receive securities in certificate form! One thing was clear though – fees are important to investors and they want to see improved disclosure. Investors should be able to quickly and easily compare prices, products and firms.

So, our association went to work with other industry associations to create a model form for fee disclosure. The idea is that this form will help prevent unfair practices that take advantage of consumers, and will also assist firms with an easy way to meet regulatory requirements. Most importantly it will help investors compare firms and ensure that they know what they are facing before deciding to work with a specific broker-dealer.

Last week we released a proposed model for broker-dealers which we believe will make these fees as transparent and easy-to-understand as possible. For now, we can’t force firms to adopt this model, but believe many will see it as a way to provide better service to their customers.

It is my hope that many firms will voluntarily implement this schedule, and that eventually we can require its use by all broker-dealers in order to standardize an important investor protection feature. In the meantime here is some advice if you are considering working with a broker-dealer, and wondering how to avoid hidden or confusing fees:

• Pay attention when you open a new account as that is typically when fees are disclosed. Also watch out for fee changes. You have a right to know 30 days in advance.
• Read the fine print. If you are having trouble discerning which services correspond to listed fees, ask questions. The firm may be required to make these disclosures but that doesn’t mean it’s easy to understand. You owe it to yourself to know for sure.
• Finally, go one step further and check the firm and broker you are working with to make sure that they haven’t had any disclosure issues in the past. You can easily do this by visiting brokercheck.finra.org, or by contacting the Division of Securities at (303) 894-2320.