ADR Custody Fee (Guidance)

1. What is an ADR?

ADR stands for American Depositary Receipt, which is a type of security that allows foreign companies to be traded in the U.S. market.

•  The underlying shares are held and custodied in the company’s home country
•  A U.S. depositary bank issues ADRs based on those shares
•  Investors trading in U.S. stock exchanges buy ADRs, rather than the company’s original shares listed in its home market

2. What is an ADR Custody Fee?

An ADR Custody Fee is a management fee charged by the ADR depositary bank to investors who hold ADRs.

The fee is used to cover services such as custody, registration, and settlement. It is not related to trading activity and is generally charged as long as the investor holds ADRs on the fee assessment date.

3. Who charges the ADR Custody Fee?

The ADR Custody Fee is charged by the ADR depositary bank.

Brokerage firms only act as intermediaries to deduct and remit the fee and cannot waive or adjust the amount.

4. How much is the ADR Custody Fee and when is it charged?

ADR Custody Fees are typically charged per share of holdings, with the specific amount subject to the depositary agreement of the corresponding ADR. The actual fee deducted is proportional to the number of shares held. ADR fees are generally deducted at the end of each year.

5. How is the ADR Custody Fee handled if there is insufficient cash in the account?

If there is insufficient available cash in the account, the ADR Custody Fee will still be charged and may result in a negative balance or pending fee.

The fee will be automatically deducted once funds are deposited, in accordance with Sahm’s rules.

6. Do all U.S. Stocks incur an ADR Custody Fee?

No. Only ADR securities are subject to the ADR Custody Fee.

U.S. Domestic stocks, such as Apple or Tesla, do not incur this type of fee.

7. How can investors avoid paying the ADR Custody Fee?

This fee generally cannot be waived. If investors prefer not to incur such fees, they may consider investing in non-ADR U.S. stocks (such as U.S.domestic companies or securities without custody fees). However, this may affect overall investment strategy, and it is not recommended to overlook asset allocation and risk preferences solely to save a small fee.