adr_pass-through_fees [CapiPedia]

This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong.
====== ADR Pass-Through Fees ======
ADR Pass-Through Fees are small, recurring charges levied by a [[depository bank]] on investors who hold [[American Depositary Receipt]]s (ADRs). Think of them as a service fee for the convenience of owning foreign stocks without the hassle of dealing with overseas exchanges and currency conversions. The depository bank (like BNY Mellon or JPMorgan) acts as a middleman, bundling foreign shares into the neat, US-dollar-denominated package that is an ADR. These fees "pass through" from the bank to you, the investor, to cover the administrative costs of this service. These costs include processing [[dividend]]s, managing shareholder communications, and ensuring compliance with US regulations. While seemingly tiny—often just a few cents per share per year—they are a direct and often overlooked cost that can subtly erode your investment returns over time.
===== What Are These Fees For, Exactly? =====
When you buy an ADR, you're not just buying a stock; you're buying a service. The depository bank handles a lot of behind-the-scenes work to make your international investment feel like a domestic one.
The pass-through fees compensate the bank for a range of administrative and custodial services, including:
  * **Dividend Distribution:** Converting dividends from the foreign currency (e.g., euros or yen) into U.S. dollars and distributing them to ADR holders.
  * **Corporate Actions:** Managing and communicating things like stock splits, rights offerings, or mergers and acquisitions from the foreign company to you.
  * **Custody and Safekeeping:** The bank’s foreign [[custodian]] holds the actual underlying shares of the foreign company on your behalf.
  * **Regulatory Compliance:** Filing the necessary paperwork, like the [[Form F-6]], with the [[Securities and Exchange Commission]] (SEC) and maintaining the ADR program's legal status.
===== Why Should a Value Investor Care? =====
For a [[value investing|value investor]], every basis point matters. You meticulously hunt for wonderful companies at fair prices, and the last thing you want are hidden costs nibbling away at your hard-won returns. ADR Pass-Through Fees are precisely that—a small but persistent drag on performance.
Imagine them as termites in the woodwork of your portfolio. A single fee of $0.02 per share seems insignificant. But if you hold 1,000 shares for a decade, that's $200 vanished from your account, not even accounting for the lost opportunity of reinvesting that money. This is a direct reduction of your [[total return]]. A true value investor scrutinizes all costs, from commissions to taxes. Ignoring these fees is like ignoring the [[expense ratio]] on a mutual fund—a mistake that separates amateurs from disciplined investors. Before you invest in a foreign company via an ADR, these fees must be factored into your valuation.
===== The Nitty-Gritty: How and When Are They Charged? =====
The collection method for these fees is what makes them feel sneaky. There are two primary ways they are collected:
  * **Deducted from Dividends:** This is the most common method. If the foreign company pays a dividend, the depository bank will simply subtract its fee before passing the net amount on to your [[brokerage account]]. For example, if the dividend is $0.50 per share and the fee is $0.02 per share, you will receive $0.48 per share.
  * **Directly Billed:** What if the company doesn't pay a dividend? The bank still needs its fee. In this case, your broker will deduct the fee directly from the cash in your account. This often appears as a vague "ADR Fee" or "Custody Fee" on your statement, making it easy to miss if you're not looking for it.
The fee is typically charged annually or semi-annually and is disclosed in the ADR's prospectus.
===== Finding the Fee Information =====
Knowledge is your best defense. Finding the exact fee is straightforward if you know where to look:
  - **The ADR Prospectus:** Every ADR is registered with the SEC via a Form F-6. This document clearly states the depository bank and details all associated fees. You can find it on the SEC's EDGAR database.
  - **The Depository Bank's Website:** Major depository banks like BNY Mellon, JPMorgan, Citibank, and Deutsche Bank have dedicated websites for their ADR programs. You can usually search by company or ticker symbol to find a fact sheet listing the pass-through fee.
  - **Your Broker:** While they may not advertise it, your broker can provide this information or point you to the right documents.
===== A Practical Example =====
Let's say you're a value investor who loves the German automaker "Autoschnell AG," which trades in the U.S. as an ADR.
  * You own: **1,000 ADRs** of Autoschnell.
  * The ADR Pass-Through Fee: **$0.03 per share, per year**.
  * Your annual fee: 1,000 shares x $0.03/share = **$30.00**.
If Autoschnell pays an annual dividend of $1.50 per share, the bank will take its $0.03, and you'll receive $1.47 per share. Your total dividend would be $1,470 instead of $1,500. It's a small difference, but it's //your// money, and it compounds over time.
===== The Capipedia Takeaway =====
ADR Pass-Through Fees are a small but important detail in the world of international investing. They are not a reason to avoid ADRs altogether, as they offer incredible convenience. However, as a savvy investor, you must treat them as a fundamental cost of doing business. Always identify the fee //before// you buy an ADR and factor it into your calculation of expected returns. A great company is still a great company, but knowing all the costs ensures the price you pay is truly fair.