Many popular trading platforms and custodians boast about “commission-free” trades. But often, “commission-free” isn’t actually free – what you can’t see is just as important as what you can.
How to invest with clarity and transparency.
See what’s on the
other side of the moon.
Payment for order flow
Maintenance and transaction fees
Credit spreads
Securities lending
Margin interest
Fund expenses
Payment for order flow is revenue that a trading platform or a custodian receives for sending your trade to a third party for execution. It quite simply means that you may not be getting the best price when you trade a security.
Payment for order flow
Maintenance and transaction fees
Credit spreads
Securities lending
Margin interest
Fund expenses
Payment for order flow
Maintenance and transaction fees
Maintenance, trading, and transaction fees are fees that custodians charge to hold your assets and execute transactions on your behalf.
Credit spreads
Securities lending
Margin interest
Fund expenses
Payment for order flow
Maintenance and transaction fees
Credit spreads
Credit spreads are the difference between the true interest paid out on a fixed-income security (like a Treasury T-Bill) and what a trading platform or custodian actually offers to you. The difference between the two is profit that goes to the brokerage firm and not into your pocket.
Securities lending
Margin interest
Fund expenses
Payment for order flow
Maintenance and transaction fees
Credit spreads
Securities lending
Securities lending is the practice of loaning shares of stock, commodities, or other securities to other investors or firms. Securities lending involves a loan of securities by one party to another, often facilitated by a brokerage firm.
Margin interest
Fund expenses
Payment for order flow
Maintenance and transaction fees
Credit spreads
Securities lending
Margin interest
Margin interest is money that is charged by a trading platform or custodian for lending you money to trade a security. The interest is profit to the trading platform or custodian.
Fund expenses
Payment for order flow
Maintenance and transaction fees
Credit spreads
Securities lending
Margin interest
Fund expenses
Those mutual funds and Exchange Traded Funds (ETFs) you invest in? Every one of those has expenses attached to it. It’s essential to know these expenses so that you can control your investment costs.
EXPENSES YOU DON'T SEE:
SAVINGS YOU SEE:
Commission-free trades
"Commission-free" trades have a larger impact beyond returns.
Trading platforms are not always required to act in the best interest of their users, meaning investors might not be getting the best price possible.
The idea of “free” may lead some investors to trade frequently, losing sight of a long-term mindset. Investors who attempted to guess the direction of the markets were incorrect 66% of the time in 2020. Outcomes were even worse in 2019.
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The problem
With every trade, trading platforms and custodians collect small fees that amount to big profits … at the expense of your financial future.
Most investors have no understanding of the fees they pay. Over time, those fees add up and reduce your returns.
1. Source: Dalbar 2021 Quantitative Analytics of Investor Behavior (QAIB) Report,” DALBAR, Inc. www.dalbar.com. Equity benchmark performance example is represented by the Standard & Poor’s 500 Composite Index, an unmanaged index of 500 common stocks generally considered representative of the U.S. stock market. Bond benchmark performance example is
represented by the Bloomberg Barclays Aggregate Bond Index, an unmanaged index of bonds generally considered representative of the bond market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results.
Percentage of trades executed at the best quoted price before the UK banned payment for order-flow practices
65%
Percentage of trades executed at the best quoted price after the UK banned payment for order-flow practices
90%
What's the real cost?
Why does this matter? It shows that trading and brokerage platforms are more likely to execute investor trades at the best quoted price when they do not accept payment for order flow.
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2. Source: “Robinhood’s business model of making hundreds of millions from customer orders takes center stage during the GameStop hearings,” BusinessInsider, February 21, 2021
A countdown to clear and transparent
investing with your advisor:
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Advisors are fiduciaries
As fiduciaries, advisors are required to act in the best interest of their clients and not place their own interests ahead of those of their clients. This means that your advisor must make investment decisions that are in your best interest – plain and simple.
See everything clearly with an advisor
When you work with an advisor, there doesn’t need to be a dark side of the moon. Here are five reasons your advisor can help you control your investing experience.
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Simple and clear
fee-for-advice models
There’s always a cost to working with a financial advisor. But many financial advisors now operate on a flat-fee basis or charge a clear percentage fee based on your assets. Ensuring that you have a clear understanding of how your advisor charges for their services helps to ensure that you can effectively control your investment costs.
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Tax management
Over 40 years, taxes can reduce your portfolio by up to 61%. Working with your financial advisor, you can implement a number of tax-smart strategies that can potentially reduce your tax burden over time.
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Investment research and manager selection
In 2020, there were over 10,000 mutual funds and ETFs, all with diferent expenses attached to them. Your advisor can help you navigate the endless number of investment choices in order to find the investment vehicles that make the most sense for your investment goals – at the lowest possible cost.
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Clear and
comprehensive reporting
Controlling your costs begins with understanding what they are. Using powerful reporting tools, your financial advisor can give you a clear picture of your investment mix and costs.
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Make sure your advisor is a fiduciary and is required to act in your best interest.
Work with your advisor to ensure a clear tax-management strategy is in place, using these tax-smart investing ideas.
Regularly assess your investment mix and costs
with your advisor.
Independent Advisor Solutions by SEI
Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company (SEI). Platform services provided by SEI Global Services, Inc. (SGS). Your financial advisor is not affiliated with SEI or its subsidiaries. Investing involves risk including possible loss of principal.Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
When it comes to your financial future, see what’s ahead with your advisor.
We believe that everyone deserves access to clear financial advice. Contact your advisor for more information about understanding fees and costs – helping you to move faster towards a better financial future.
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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. Some information contained herein has been provided to SEI by unaffiliated third parties. SEI cannot guarantee the accuracy or completeness of the information and assumes no responsibility or liability for its incompleteness or inaccuracy.
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Building brave futures.
SM
Building brave futures.
SM