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2. Custody, maintenance and the annual toll

Costs 1: What you pay and can see

The dealing commission has one pedagogical virtue: it hurts at the moment it is charged, and you can see it. The cost this module deals with is worse precisely because it does not hurt. It is charged quietly, in small amounts, spread across the year, and it goes on being charged in the year you never touch the portfolio, the year you go traveling and the year your portfolio loses 30%. It is the toll for the mere fact of owning securities.

What custody is and why it exists

Your shares are not sitting in a drawer. They exist as book entries inside a registration system: the central securities depository records the aggregate balances and your broker keeps the individual register that says which part of that is yours. That service, called custody or securities administration and safekeeping, costs real money: infrastructure, daily reconciliations, dividend handling, notification of corporate actions, regulatory obligations.

The problem is not that it is charged. The problem is how the tariff is built, because a small percentage is almost always paired with minimums that are anything but small.

The full catalog of the annual toll

Several quite distinct fees shelter under the umbrella of 'maintenance', and a great many portfolios pay more than one of them at once:

The simple sum: what 0.25% a year amounts to

Start with the easy version, the one a single multiplication settles. Custody of 0.25% a year on a portfolio of 50,000 euros comes to 125 euros a year. Put that way it sounds bearable, which is exactly why it works.

Now put two questions to that same number. First: what is it really being measured against? If that portfolio returns 7% gross, it makes 3,500 euros a year, and the 125 euros are 3.6% of your gain, not 0.25% of anything. Second: what happens as the portfolio grows? At 200,000 euros the same tariff costs 500 euros a year for exactly the same service, which has not become four times better. A percentage of the balance is a partner who quietly increases his stake every time things go well for you.

The minimum per security: the detail that triples the tariff

Here is the real trap, and it deserves the sum written out in full. Take a tariff of 0.25% a year with a minimum of 1.50 euros per security per quarter, a structure anyone will recognize from European retail banking.

An investor with 8,000 euros spread across ten different shares does the sums on the headline tariff: 0.25% of 8,000 is 20 euros a year. That seems fair enough to him. What he actually gets charged is another matter:

And the mechanism has a perverse consequence: the per-line minimum penalizes diversification. The more different companies you hold, the more minimums you pay. An investor with those same 8,000 euros in a single share would pay 20 euros a year, because with one line the percentage takes charge: 0.25% a year on 8,000 euros is 5 euros a quarter, well clear of the 1.50 minimum. The one who does the prudent thing and spreads out pays 60, three times as much.

Dividends pay a toll too, and there the minimum is devastating

Stay with the same portfolio and add a dividend collection fee of 0.20% with a minimum of 1 euro per payment. The headline tariff looks derisory. Now count the payments: eight of those securities pay a quarterly dividend, which gives 32 credits a year. Each one pays the 1-euro minimum.

Had the advertised 0.20% been applied to those 240 euros, you would have paid 48 cents. You pay 32 euros. The gap between the number in the brochure and the real number is a factor of more than sixty.

The total, and the exit door

Add up what that 8,000-euro portfolio bears before buying or selling anything at all: 60 euros of custody plus 32 of dividends make 92 euros a year, 1.15% of the assets. That is close to what the cheapest retail active fund in the European market costs and seven times what an index fund costs, and in return there is no management of any kind: it is merely the rent on the place where your shares happen to sit.

One last detail is missing, the one that turns all of this into a decision rather than a complaint: transferring securities to another institution is usually charged per line. At 15 euros per security, moving ten positions costs 150 euros, almost 2% of that portfolio. It is an exit barrier and it works as one: plenty of people work out the cost of leaving, decide it is too steep, and stay on paying 92 euros a year for a decade. That calculation is framed wrongly. The 150 euros are paid once; the 92 are paid every year, and they rise with the balance. The right comparison is not 150 against 92, but 150 against the sum of all the years you still have ahead of you.

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