Brokerage Fee: What It Is, How It Works, and How to Reduce It

Key takeaways
* A brokerage fee is a charge a broker or agent imposes to execute transactions or provide specialized services.
* Fees can be a percentage of assets or transaction value, a flat fee, or a combination.
* Fee levels vary widely by industry and broker type — full-service brokers, online/discount brokers, and robo-advisors have very different cost structures.
* Many online brokerages now offer $0 commissions on listed stocks and ETFs, but brokers still earn revenue through other means.

What is a brokerage fee?

A brokerage fee (also called a broker fee or commission) is the payment a broker charges to carry out transactions or deliver services on a client’s behalf. These services include buying and selling securities, negotiating contracts, providing advice, and managing accounts. Brokerage fees appear across industries such as financial services, real estate, insurance, and mortgage brokerage.

How brokerage fees are charged

Common fee structures:
* Percentage of transaction or assets under management (AUM)
* Flat fee per trade or per service
* Hybrid (e.g., a base fee plus a percentage)

Industry examples:
* Real estate: Typically a percentage of the sale price (commonly around 5%–6%, often split between seller’s and buyer’s agents), or sometimes a fixed fee.
* Mortgage brokers: Fees usually run about 1%–2% of the loan amount.
* Insurance brokers: May charge client fees and in some cases receive commissions from insurers.
* Financial securities: Fees vary by broker type (see next section).

Brokerage fee breakdown for investment services

Full-service brokers
* Provide services beyond trade execution: financial planning, tax guidance, estate planning, in-depth research, and personalized advice.
* Typical fees: about 1%–2% of AUM annually. Example: a $500,000 portfolio could incur $5,000–$10,000 per year.
* Other mutual-fund–related fees: 12b-1 fees (0.25%–1%) and annual maintenance fees (often 0.25%–1.5%).

Online and discount brokers
* Focus on trade execution and basic account services, often operating primarily online.
* Many brokerages now offer commission-free trading for listed stocks and ETFs; options and nonstandard assets may still carry fees.
* Fee compression has made trading costs far lower than traditional full-service models.

Robo-advisors
* Provide automated portfolio management and financial planning via algorithms.
* Target investors seeking a low-cost, hands-off approach.
* Fees are typically much lower than human advisors — industry averages around 0.20%–0.30% AUM; some services offer 0% for basic tiers.

How brokers still make money when commissions are low or $0

Even when per-trade commissions are eliminated, brokers often earn revenue through:
* Margin lending (charging interest on borrowed funds)
* Securities lending (loaning clients’ stocks to short sellers)
* Premium subscription features and managed-account services
* Account fees or inactivity fees
* Selling order flow to market makers

How to reduce or avoid brokerage fees

• Compare brokers on total costs and services provided, not just headline commissions.
• Use commission-free ETFs and no-load mutual funds where appropriate.
• Consider robo-advisors for low-cost automated management.
• Read fee schedules carefully and ask about hidden or ancillary charges (account maintenance, transfer fees, margin rates, etc.).
• For active options or futures traders, evaluate per-contract and platform fees.

Frequently asked questions

Is it normal to pay a brokerage fee?
Traditionally yes, but online competition has driven many brokers to eliminate commissions on stocks and ETFs. Other types of fees may still apply depending on services and instruments.

Which brokers offer $0 commissions on stock trades?
Several major online brokerages have offered commission-free trading for listed stocks and ETFs. Examples include Robinhood, Charles Schwab, Fidelity, E*TRADE, Interactive Brokers, Webull, Vanguard, and others. Availability and terms vary.

What does options trading typically cost?
Options pricing often combines a base commission and a per-contract fee. Structures vary by broker; per-contract fees commonly range from about $0.50 to $0.65 or more, with volume discounts at some firms.

What is a typical real estate brokerage fee?
Realtor and broker commissions are commonly around 5%–6% of the sale price, usually split between listing and buyer agents. Discount brokerages may charge lower percentages or fixed fees.

Bottom line

Brokerage fees are the cost of accessing markets and professional services. Fee structures differ greatly by industry and by the type of broker. For many investors, simple stock and ETF trades can now be executed with minimal or no commission, but it’s important to evaluate the full fee picture and the value of any services provided before choosing a broker.