A good expense ratio, from the investor's point of view, ranges from 0.5% to 0.75% for an actively managed portfolio. A spending ratio greater than 1.5% is considered high. The spending ratio of mutual funds is usually higher than the expense ratio of ETFs. Management fees, whether paid as a mutual fund spending ratio or as fees paid to a financial advisor, usually range from 0.01% to more than 2%.
In general, the range in the amount of the fee is due to the management strategy. For example, more aggressive investment portfolios tend to have higher management fees because they require more work due to higher stock turnover. Passive funds may have lower management fees because they select and then keep the assets in the portfolio. Essentially, management fees are the cost of managing your investment or investments in a professional manner.
It also doesn't hurt for the broker to offer four mutual funds that don't charge management fees, making them excellent options for IRA investors. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has an annual fee of 0.40%. If you use the services of a financial advisor or investment broker, you'll end up paying management fees while they manage your investments. Any investment advisor worth working with should be willing to explain to you, in simple language, all the different types of investment fees you'll pay.
For example, if you buy shares in a mutual fund, that fund manager will receive commissions in exchange for choosing investments for the fund. The commission compensates professional money managers for selecting securities for a fund's portfolio and managing them based on the fund's investment objective. The expense ratio is not deducted from your account, but the return on investment you receive is already net of fees. You can also access a sophisticated objective-based planner (even if you don't have your IRA here), as well as a full-featured cash management account.
Investment fees and trading fees used to be tax-deductible on their annual returns, but that's no longer the case. For example, you may have an annual base fee and investment fees within your portfolio. Investors in securities usually choose to use this commission structure, since they are generally based on cash reserves and then use them to execute an investment strategy. If you understand how your investment manager earns your money and how they will work for you, you can select an investment manager that meets your needs.
IRAs usually don't include account setup fees, but you'll likely have to pay transaction and advisory fees when appropriate, as well as expense ratio fees on funds that cover operating costs. These are some of the most common commission structures you'll encounter when partnering with an investment manager or financial advisor.