Fee Chaos: A Guide Every Investor Should Know

"Attractive returns in volatile times!" This is how banks, trading platforms, or robo-advisors often advertise investment products such as funds, structured products, or ETFs. However, behind such seemingly clear promises of profit often lurks an opaque jungle of fees. Unlike in a store where each item has a fixed price tag, the costs of financial products are not so easily visible.

This is troublesome because costs are crucial even with financial products: Firstly, because there are always fees associated with financial products, regardless of whether the product is currently making a profit or incurring losses - you have to pay for it either way. Secondly, because high fees can significantly reduce your returns - especially over the long term (compound interest effect, remember?). We'll show you what to look out for when investing so that you're not suddenly surprised by high costs.

Choose your partner wisely

When you want to invest your money, the first thing to consider is which provider you'll use. In general, these can be divided into three groups:

1. Do-it-yourself solutions: This means you assemble and manage your portfolio independently. This can be done through a brokerage account with a traditional bank or through an online broker.
2. Robo-advisors: These digital platforms use an algorithm - usually without human supervision - to assemble and monitor your portfolio.
3. Traditional advisory services: You seek advice independently or at a bank. The advisor then puts together and manages a portfolio for you.

Which type of provider you choose is your personal decision. The following questions can help you make your selection:

• How much prior knowledge do I have? Do I trust myself to assemble my portfolio, or would I prefer someone else to do it for me?
• How much time and inclination do I have to deal with my investments? Do I want to regularly monitor my portfolio, or would I like someone else to do it for me?
• Psychology: How sensitive am I to fluctuations and losses? Do I have the nerves for the stock market?
• Do I need personal advice and a personal point of contact?
• How much in fees am I willing to pay? Do the fees correlate with my investment amount and return expectations?

And with that, we're already diving into the topic of fees.

Céline Meier

There's no such thing as free. Regardless of the business model, whether it's a bank, online broker, trading platform, or robo-advisor: All of them need to make money through fees. And they all hide them differently.

Opening a brokerage account

Regardless of which provider you choose, you first need a brokerage account. A brokerage account is where your investments are held. Brokerage fees can be charged in different ways:

• Percentage on your investment assets: For example, if you've invested 10,000 Swiss francs and the brokerage fee is 0.4%, you pay 40 Swiss francs in brokerage fees.
• Flat fee: Regardless of your invested assets, you pay a flat fee, for example, 18 Swiss francs per quarter - so 72 Swiss francs per year.
• Percentage depending on the investment product: Some banks charge lower brokerage fees for money invested in their own investment products such as funds or higher fees for investments abroad.
• No brokerage fees: Too good to be true? Exactly. If you seemingly don't pay brokerage fees, they're hidden in other fees (management fees), or - beware! - you pay an inactivity fee instead if you don't trade your securities (such as stocks) often enough - meaning you don't sell them regularly or buy new stocks. Particularly insidious: This back and forth empties your pockets. Those who trade a lot pay the most fees.

Conclusion: There's no such thing as free. Regardless of the business model, whether it's a bank, online broker, trading platform, or robo-advisor: All of them need to make money through fees. And they all hide them differently.

Tip: To compare the different brokerage fees, you can use independent comparison platforms like Moneyland. There you'll find transparent comparisons of different banks and online brokers. It's important to note: The brokerage fee is charged regardless of whether you conduct so-called trades. So, you pay it even if you don't sell any securities or buy new ones throughout the year.

Choosing investment products

Next, you should consider how you want to invest your money. Most providers offer the following options:

• Individual stocks: When you invest in individual stocks, you can control where your money goes. However, there's a risk that you won't diversify enough - meaning you'll put too many eggs in one basket.
• ETFs: Exchange-Traded Funds are passively managed index funds. With ETFs, you can invest relatively inexpensively and broadly because they track a benchmark index, such as the SMI, and thus represent a variety of securities. However, with ETFs, you are not a shareholder in companies and have no voting rights.
• Actively managed funds: In actively managed funds, a fund manager selects a range of securities for a product. You can also diversify with funds, but the fees are significantly higher than with ETFs.

Product costs, management fees, and commissions

Now that you know which investment products you want to invest in, it's worth comparing fees again. If you opt for a do-it-yourself solution and assemble your portfolio yourself, you'll need to consider the following fees in addition to brokerage fees:

• Product costs (TER): The Total Expense Ratio is the most important indicator for comparing different products. These costs apply to both ETFs and funds for managing the product. With ETFs, they typically range from 0.2 to 0.6 percent per year, and with actively managed funds, they are around 1.5 percent. Some banks charge additional performance fees for actively managed funds if a fund performs particularly well.
• Additional fees: Not included in the product costs are exchange fees, taxes such as stamp duties, or foreign currency fees for securities traded in another currency.
• Trading fees: These are also called commissions and are incurred when you buy or sell a security - i.e., make a trade. Depending on the provider, a trade costs between 5 and 15 Swiss francs. So, if you regularly add or sell securities to your portfolio, trading fees can amount to hundreds!

Again, especially the trading fees should be carefully examined, even if you plan to invest a small amount every month (this is called "dollar-cost averaging"). If you then pay high trading fees each time you buy securities, it can eat up a large portion of your returns. Consider whether investing with a robo-advisor or through traditional advice makes more sense for you. With robo-advisors and wealth managers, you usually don't pay per trade, but as follows:

• Product costs (TER): depend again on the choice of your investment instruments.
• Additional fees such as exchange fees, taxes, or foreign currency fees - these are similar to when you invest yourself.
• Management fees: Those are the costs incurred for assembling and monitoring your portfolio. With robo-advisors, administrative fees average around 0.62 percent per year, while with traditional wealth managers, they're around 1.37 percent per year.

Here too, we recommend comparing fees for different products on platforms like Moneyland.

An example?

Feeling overwhelmed by all this fee confusion? Then perhaps this specific calculation example will help you. Suppose you want to create a portfolio of four different ETFs. Every month, you set aside 300 Swiss francs and invest the money directly into your ETF portfolio. The fees are calculated for a year. Spoiler: You'll pay between 44.10 and 411.90 Swiss francs for the same thing!

Option 1: With a robo-advisor

Brokerage fees: 0.4% x CHF 300 x (12/2) = CHF 7.20
Product costs: 0.3% x CHF 300 x (12/2)= CHF 5.40
Additional fees (stamp duty, foreign currency fees, stock exchange fees, etc.): CHF 22.50
Administrative fees: 0.5% x CHF 300 x (12/2) = CHF 9
Trading fees: none

So, you'll pay fees totaling CHF 44.10 for an annual investment sum of CHF 3600. That means 1.2% of your invested assets go towards fees. Only when your portfolio generates a return higher than this 1.2%, will your wealth grow.

Option 2: With a do-it-yourself solution

Brokerage fees: none
Product costs: 0.3% x CHF 300 x (12/2)= CHF 5.40
Additional fees (stamp duty, foreign currency fees, stock exchange fees, etc.): CHF 22.50
Administrative fees: none
Trading fees: CHF 8 x 4 x 12 = CHF 384

So, you'll pay fees totaling CHF 411.90! That's 11.4% of your invested assets. So, you see, if you want to invest small amounts regularly, do-it-yourself solutions can be very expensive because you pay for every trade. It's different if you deposit the entire amount of CHF 3600 at the beginning of the year:

Brokerage fees: none
Inactivity fee: CHF 10 x 3 = CHF 30
Product costs: 0.3% x CHF 3600 = CHF 10.80
Additional fees (stamp duty, foreign currency fees, stock exchange fees, etc.): CHF 22.50
Administrative fees: none
Trading fees: CHF 8 x 4 x 1= CHF 32

Then you'll pay fees totaling CHF 95.30 - significantly less than if you invest a small amount every month. The downside: If the market fluctuates, you may end up investing a rather large sum at an unfavorable time.

And the return?

Now that you know the fees of your investment products, you should compare them with the return the product generates. After all, higher fees may be justified if the return is correspondingly higher. It's also recommended to look at comparison platforms for this. Make sure to compare only products with similar risks - because high returns are always associated with higher risks. Besides purely financial aspects, other criteria can also play a role in choosing your investment strategy, such as sustainability criteria.

Before you start investing, one last eXXtra tip: Be sure to look at the fee structure before opening a brokerage account and making your first investments. Because once you have a portfolio with positions and want to change providers, you'll pay transfer fees. Separation hurts here too. Switching banks is easy, but it costs a lot in Switzerland. The costs for delivering securities, i.e., for the simple electronic transfer, typically range from 50 to 100 Swiss francs, sometimes even up to 200 Swiss francs. And not per account, but per security.

So, inform yourself early and then get started!