Ask Doug

Why Am I Being Charged a $15 Fee?

Q. I wanted to get started in a Direct Stock Plan, but the stock I wanted charged a $15 fee to buy the stock. This is only charged on the initial purchase, right? Once I'm in the plan, isn't it like buying and owning stocks from a broker but with no fees on your additional purchases?

A. Yes. There are two types of fees you will face in DRIP/DSP investing. First, you need to acquire the necessary number of shares before you enroll in the DRIP. There can be a charge for this, depending on the service or broker you use, or, if you invest in a DSP, the fees that the company charges.

Then, the DRIP may charge fees for each additional purchase. Each DRIP is different, so you need to check the fees for each company in which you're interested, particularly those related to additional purchases. If the DRIP does charge fees, they will often be less than a discount broker's commission, so the fees may still be affordable.

You should be aware, though, that fees will eat away at returns over time. If a DRIP or DSP charges $15 for each additional purchase, then a $100 investment doesn't make sense, since 6.6% of your initial investment would be consumed by fees! My rule of thumb is to limit fees to no more than 2% and preferably less than 1% of each investment transaction.