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I am pretty new to ADR concept. Just that recently, I realize by owning ADR, I will be charged an amount of fee.

http://www.investopedia.com/ask/answers/06/adrdepositorybank.asp

  1. How frequent the ADR fee is being charged? Is it a one time fee, or per annual fee?
  2. I am a long term investor, where I usually hold a stock >5 years. This ADR fee seems will increase my investment cost as time goes on. I was wondering, is it worth paying the ADR fee? Or should I just directly invest in that company local stock market. (Say, for BP, if I want to avoid the ADR fee, I will just directly invest in London Stock Exchange)

p/s I am a Malaysia resident. Investing in either London market or US market will both expose me to currency exchange risk. Hence, the point which ADR will reduce currency exchange risk doesn't apply to me.

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Usually the ADR fee comes out of dividend payments and is modest. The ADR that I am most familiar with (Vodafone - VOD) pays dividends twice a year and deducts either $0.02 or $0.01 per share.

IMO, the ADR fee is not really a material factor. ADRs do have some disadvantages though:

  • They are priced in USD, but the underlying investment is still a foreign currency (GBP in the case of BP or VOD). So in your case as a Malaysian, you are subject to two levels of currency risk.
  • Like ETFs, some ADRs are thinly traded and may have wide buy/sell spreads.
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  • Just that get some clarification. If you own 100 units of VOD, does it mean you will be deduct total $2.00 or $10.00, out from your received dividend?
    – Cheok Yan Cheng
    Commented Jan 2, 2011 at 16:02
  • I had a misprint. In the case of VOD, they charge $0.01 for the interim dividend, and $0.02 for the final dividend. For 100 shares, you pay a total of $3 for the year.
    – duffbeer703
    Commented Jan 2, 2011 at 21:28
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    Note that other ADRs may vary -- you should consult the investor relations section of the company's website.
    – duffbeer703
    Commented Jan 2, 2011 at 21:37
  • I had searched the BP investor relation web site but unable to find any information regarding this. I had emailed them regarding this question but didn't get a reply. Do you have any idea?
    – Cheok Yan Cheng
    Commented Jan 10, 2011 at 5:22
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I agree with @duffbeer703 that fees are not a big factor, especially if the ADR doesn't pay dividends. The 2 alternatives aren't that attractive:

  • Buy shares directly on the local exchange - it’s easier than you think, but also costs more than you think, due to foreign currency fees.
  • Buy funds that hold the stock - works for very few foreign stocks. For example, no fund has significant percentage of their holdings in Xiaomi.

A minor con of ADRs is that they “terminate”, or stops trading, and you have to do something with them and incur a small fee.

I did a bunch of research on the pros and cons of ADRs, and wrote about my learnings and the exact fee calculations here.

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How frequent the ADR fee is being charged? Is it a one time fee, or per annual fee?

From the DTC Fee Guide (mirror):

ADR Custodial Fee (Pass Thru): Varies. Per share fee, typically $0.02 per year, as determined by the ADR depositary bank Fee can be divided (ex. $0.01 and $0.01) at the discretion of the depositary bank.

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