By and large, investors don't understand the investment fees they pay. I've seen this in my conversations with others, but surveys confirm it: A 2017 survey conducted by the Harris Poll found that 61% of respondents did not know the fees they paid on all their investment accounts.

If investors think all fees look the same and add up the same, they're grossly mistaken. Investment fees vary widely, they're presented (or not presented) in myriad ways, and -- as we all know -- they can seriously erode your returns.

Fees will probably never be like gas or milk prices, which we can easily understand and compare. But you can pinpoint the fees you're paying, understand what they go toward, and then add them up with a 15-minute exercise.

Let me break down the fees you should look for on your brokerage statement -- and elsewhere.

A couple meeting with man in a suit.

Image source: Getty Images.

Peeling back the layers

Onions make for a good analogy for a bundle of fees. Often, fees can be found in each of the layers that connect you to your investments, from your advisor, to the broker, to the actual money-managers who are selecting investments. Make sure you cut through all the layers, as it could save you some tears (i.e., thousands of dollars) in the long run.

1. Start with advisory fees

If you have a financial advisor, start right there. Your advisor is likely your point of contact and intermediary connection to your portfolio. It's easy to ask advisors what their fees are, and they tend to disclose these better than the inner layers of the onion.

Where to find them: In your statement, fees should be fully disclosed -- if not in percentage terms, then in dollar amounts. Because percentage terms are easier to compare across companies, figure this number out for yourself if necessary. For a quarterly statement, for example, find the dollar amount (search for "fee," "charge," or a similar word coupled with "advisory" in most instances) and divide that figure by the assets you have in the account.

The percentage you come up with will vary, but it should be somewhere between 0.3% and 3% of total "assets under management" -- that is, the size of the portfolio the advisor is helping you manage. You'll notice that's a tenfold difference. Charles Schwab and Vanguard are the rare advisors that are laser-focused on being low-cost providers, and they sit near the bottom of that range.

The high end of the range tends to require more hands-on advisors, and names like UBS and Ameriprise hover near the top. Keep in mind that this is not an assessment of whether these companies' advisor services provide value that's worth the fees we pony up. But this is an assessment that you need to do to even begin to assess that value. For reference, 1% is what industry insiders point to as a "rule of thumb" that is typical across advisory shops, as found in a survey by Bob Veres' Inside Information, an industry expert.

If you're having trouble finding the fee in your statement, check your online account. Beyond that, you can search for fees typically charged by your investment advisor by finding public filings published with the Securities and Exchange Commission (SEC). Every advisor has to file these, and the one you'll want to track down is the Form ADV Part 2A for your specific advisor. For UBS, for example, you could find this on its website. Or you could Google "UBS Form ADV Part 2A," and your first result will likely be its most recent filing with the SEC.

Within the ADV Part 2A form, search or scroll for the fees that will be disclosed within. It could be a simple one-line disclosure or a more elaborate table outlining fees tied to different services. Find yours and go from there.

2. Next, the expense ratios

A level below the advisor fees sit the fees related to your actual investments. These are often referred to as "expense ratios." Most investors hold some funds -- either index funds or actively managed mutual funds -- and these funds charge their own fees for the work their managers' do.

These expenses are less likely to be disclosed in your quarterly or monthly statement. My guess is that fewer individuals know their fund-related fees or expenses than know their advisory fees. This is understandable: After all, I know what I pay in utilities, but I don't necessarily know each and every component of my utility bill.

Where to find them: This is often a more manual process. The best way to go about it, I've found, is to copy the ticker symbols of the funds within your portfolio and paste those into Morningstar.com. You can do this one by one -- for example, if you own the Vanguard 500 Index, copy and paste VFINX into Morningstar's search bar. Or you can create a "portfolio" within Morningstar to upload your tickers in bulk. We'll focus on the former option (manual) for now.

Once you're on the fund's quote page in Morningstar, look primarily for two things related to fees: "Expenses" and "Load." Sure, there's lots of other information in there that's relevant. But again, you want to assess what you're paying -- then you can assess the rest.

Expenses will be presented as a percentage, like 0.64%; load will simply be a number, like 5.75. Both are truly percentages of your invested assets, despite the difference in presentation; i.e., a 0.64% expense ratio on a $100,000 investment is $640, whereas a 5.75 load on $100,000 is $5,750.

Expenses are assessed on an ongoing basis year after year, whereas loads are also percentages, but you only incur them once. For example, a "front-end load" is a fee you pay when you first invest in a mutual fund. It looks like a commission in that way; it's not, but for that reason, we'll lump these together and discuss them in a later article.

Expense ratios can range to the same degree that advisor fees do. An index fund's expense ratio could be as low as 0.08%, whereas a mutual fund could charge 2%. These are the extremes, and most funds fall in the middle. There are other variables to take into account, but anything greater than 0.5% to 0.75% should raise an eyebrow. Even at those levels, you should look at the fund's five- or 10-year performance to see the fee is justified.

3. Finally, add the advisory fees and expense ratio

We've covered the two primary categories of fees: advisory fees and expense ratios. You've had to dig, make some calculations, consult a third-party website or two, but your work is almost done. To arrive at a single percentage for regular, ongoing fees, you need to add these two together. The hard work's done because this is simple, as shown in a hypothetical example:

Advisory fees plus expense ratio = 1% + .88% = 1.88%

You may be wondering, "What if I hold several funds with a variety of expense ratios?" In that case, the most accurate figure would be a weighted average based on how much of your portfolio is allocated to each one. If the weightings are similar, you may want to shortcut that exercise and simply use the average of the expense ratios.

So what does this mean in terms of dollars and cents? Let's say your portfolio is worth a total of $100,000, and your all-in fees come to 1.88%. At the end of the day, that fee, which may look small at face value, can put a huge dent in your returns.

Consider the impact it can have on $100,000 invested at an annual return of 6% over 10 years:

  • End value with fees: $155,151
  • End value if no fees existed: $179,085
  • Total fees paid: $23,934
  • Total reduction of future portfolio value due to fees: 13.4%

Those fees would cost you nearly twenty-four thousand dollars. That's nothing to sneeze at. In fact, that's a year's tuition at many universities, a down payment on a $120,000 home, or a luxurious international vacation for a whole family.

Here's the investment fee calculator I used to get there. Give it a spin. It could just land you a trip to the Caribbean. 

What's next?

You've now reached a point where you can make comparisons, consider the value you're getting for your money, and assess your portfolio's performance relative to fees paid. You're probably thinking, "Why didn't my advisor do this for me to begin with?" It's a fair question, especially since we haven't covered everything in a single article. There are still loads, commissions, 12b-1 fees, and other costs.

Advisory fees and expense ratios are the major ones, however. With the information in this article, you're in a much better position to pick up the phone and get the lowdown from your advisor. With total all-in portfolio costs declining over the last decade, the only question remaining is: "What are you waiting for?" 

Isaac Pino, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.