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Noah Smith

Why Fund Managers Skim Your Savings

Some investors are starting to balk.
Taking a cut.

Taking a cut.

Photographer: Thomas Trutschel/Photothek/Getty Images

When I open an account at a bank, I get charged the same fee whether I put in $100 or $10,000. This makes sense, since it doesn’t really cost the bank much more to hold $100 for me than to hold $10,000. 

But if I invest $10 million in a mutual fund, I’m typically going to pay 10 times more than if I invest only $1 million. This is because the mutual fund charges a percentage fee. Part of that fee goes to pay for the fund’s administrative and marketing expenses. But part of it is simply called a management fee or an investment advisory fee. It is just a percentage cut that the fund takes out of my investment every year. Typically, this fee is about 0.5 percent to 1 percent. Financial advisers also typically charge a percentage fee based on the assets they oversee.