For decades, financial professionals have stressed that fees matter. Even small differences in costs can compound into significant dollar amounts over time. Yet despite this well-documented reality, a large portion of investors still do not fully understand what they are paying, how those fees are charged, or how deeply they affect long-term investment outcomes.
A national FINRA Investor Education Foundation survey underscores this troubling gap in financial awareness: many investors either underestimate or are completely unaware of the fees embedded in their investment accounts.
The Hidden Nature of Investment Fees
Investment fees are often not presented as a single, clear charge. Instead, they are typically layered throughout an account in ways that make them difficult to recognize. These may include:
- Expense ratios for mutual funds and ETFs
- Advisory and asset-based management fees
- Brokerage commissions and markups
- Trading costs
- Insurance and rider fees inside annuities
- Surrender charges and administrative fees
Because many of these costs are deducted automatically before returns are reported, investors may only see their net performance—never realizing how much of their gross return was siphoned away before it reached them. This dynamic helps explain why a survey — from “What You Know (Or Think You Know) About Investing” by the FINRA Foundation — found that investors with higher self-assessed investing knowledge often reported paying higher fees.
What the Data Say
A 2023 report by the Foundation — titled How Much Are You Paying? — reveals important patterns. Investors with stronger objectively measured investing knowledge tended to report lower fees, while those who overestimated their own knowledge ended up paying more.
More broadly, prior waves of the Foundation’s research illustrate the scope of fee-ignorance in the U.S.:
- A 2019 survey of non-retirement investors found that nearly one-third believe they pay no fees at all or do not know how much they pay.
- In a 2022 report on the Foundation’s work, 21% of investors said they don’t think they pay any kind of fee, and another 17% said they did not know how much they pay.
- In 2023, the percentage claiming they pay no fees rose (compared to earlier years), indicating the problem may be growing.
These findings suggest that a substantial share of U.S. investors are either under-informed or misinformed about their true costs — a risk to long-term returns.
Why Fee Awareness Is So Poor
Several structural issues contribute to this lack of awareness:
1. Complexity of Disclosures
Fee disclosures are often buried in prospectuses, account agreements, or complex regulatory forms (like Form ADV) that run dozens of pages and use financial jargon. Studies by the Foundation and partner organizations have documented that complex investing terminology itself reduces comprehension, especially among certain demographic groups.
2. Asset-Based Pricing Feels Invisible
When fees are deducted as a percentage of assets rather than billed as a dollar invoice, the cost feels abstract. A 1% advisory fee on a $1 million portfolio amounts to $10,000 per year — a large sum that may still feel “out of sight.” Because the fee never appears as a line item the investor actively pays, it can be easy to ignore or forget.
3. Behavioral Bias and Trust
Many investors trust that their advisor or firm is acting in their best interest and do not think to question compensation structures. Others simply do not believe they are paying — or assume that investment advice or product-management is “free,” especially in long-term or buy-and-hold strategies. The survey data suggest this mindset remains widespread.
The Long-Term Cost of Not Knowing
The danger of fee blindness is not just academic — it is financial. Even seemingly small fee differences can erode long-term returns significantly, due to compounding over many years.
Some industry analyses extrapolate that cumulative costs from high-fee mutual funds or advisory structures can amount to “hundreds of thousands” over decades, especially for long-term investors.
Thus, what feels like a “small” fee today may quietly undercut an investor’s retirement nest egg or long-term savings plans — without the investor even realizing it.
Confusion Between “Commission” and “Fee”
Another challenge: many investors do not distinguish between commission-based charges and ongoing, recurring fees.
- Commissions: charged per transaction (e.g., when you buy or sell a stock or fund).
- Asset-based or management fees: recurring, often charged annually as a percentage of assets under management.
Some investors may focus on avoiding commissions (e.g., by choosing “commission-free” trading), while ignoring or underestimating the larger ongoing asset-based fees — which over time may total far more than commissions ever would. This confusion further clouds awareness.
Annuities, Insurance Products, and Layered Costs
Though the Foundation’s core survey focuses on non-retirement investment accounts, the broader ecosystem of investment products (e.g., variable annuities, insurance-linked investments) tends to exacerbate fee confusion due to layered costs — including fund expense ratios, mortality and expense charges, administrative fees, optional riders, and surrender charges. Because these costs are compounded and sometimes buried in disclosures, many owners may dramatically underestimate the true all-in cost of such products.
This complexity underscores why financial-literacy and clear education are critical, especially for investors approaching retirement or using such multifaceted products.
Why This Matters for Retirement Security
Fee awareness becomes especially critical as investors approach or enter retirement. At that stage:
- Portfolios are often at their largest balances
- Withdrawals magnify the effect of fees
- There is less time to recover from underperformance
Excessive ongoing costs during retirement can accelerate portfolio depletion, increase sequence-of-returns risk, and raise the probability of outliving assets. Given that many investors may not realize how much they are paying — or that they are paying at all — the risks to retirement security are real and substantial.
What FINRA Recommends Investors Do
The FINRA Foundation and financial-education advocates generally urge investors to take several core steps:
- Ask Directly About All Fees — request a full, written breakdown of every fee you pay, explicit and embedded.
- Review Fund Prospectuses and Advisor Disclosure — funds must disclose expense ratios; advisors must file Form ADV (or similar), which includes fee and compensation structure.
- Request Dollar-Based Examples — converting “1 %” into actual dollars helps show the real cost.
- Compare Alternatives Periodically — as portfolios grow, fees rise in dollar terms even if the percentage stays the same; periodically reassessing advisors, custodians, and fund choices may save substantial money.
- Focus on Education & Transparency — greater financial literacy helps investors see through complexity and make informed choices.
In an era characterized by market volatility, rising costs of living, and growing financial complexity, fee awareness is not optional — it is essential. Investors who take the time to understand their true costs place themselves far better to protect their returns, extend their retirement income, and preserve wealth for future generations.
