If you’re like most Canadian investors, you own mutual funds. They have become a staple in our investment portfolios over the years.
Your mutual funds have a cost referred to as the MER (management expense ratio). This is an all-inclusive cost including the professional portfolio manager (the team making the investment decisions), the funds administration and the fee paid to your financial advisor. Most Canadians don’t know what they are paying and some think they are not paying anything. For the latter, you are mistaken!
The average MER for a Canadian equity fund is 2.35% according to a Morningstar report published in 2016. As I mentioned, the cost includes the professional portfolio, funds administration and the fee paid by the fund to your financial advisor.
The MER is calculated on the total dollar value of your mutual fund holdings. As an example, if the mutual fund returned 7% a year, the 2.35% MER would be taken off the top and your return would be reported as 4.65%
If your portfolio is a million dollars, your fee would be $1,000,000 x 2.35% = $23,500 per year. That is a big chunk of change, especially if you didn’t know you were paying it!
Many Canadians are in the dark about fees and what they are paying their advisors.
You deserve to understand what you’re paying as the long term effects of paying too much can really hurt your returns over the long run.
The more understanding you have of what you are paying your financial advisor (or your fund manager) can make a big difference to your retirement savings.
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Chris Mills, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.