Did you know that your mutual funds have a cost associated with them? That cost is called the Management Expense Ratio (MER). What is a MER? What does that mean for my mutual fund investments? How much money is being taken off?
The MER represents the cost to the fund company for managing and operating your portfolio throughout the year. According to Aviso, this fee can vary anywhere between 0.5% to 4% of your invested assets, depending on the type of fund.
The mutual fund company has a team of professionals that manage the fund and they can have overhead costs for things relating to accounting, administration, advice, service, and so on. The MER is typically split between the fund company who manages the investment itself and the financial institution that manages your portfolio and who you have a direct relationship with.
There are four components to the total MER cost associated with a mutual fund:
- Investment Management – these are paid to your Financial Planner. The investment management fee covers the cost of fund oversight, service, and administration.
- Operating Expenses – includes day to day costs such as regulatory filing fees, bookkeeping and administration fees, audit fees, legal fees, custody fees, and marketing costs.
- Trailing Commissions – also known as a ‘trailer,’, these are paid to the investment dealer and a portion may be paid to your Financial Planner in return for investment advice and account servicing.
- Tax – the rate and type of tax varies by province.
It's also important to know that the published rates of return on your fund are net of these fees, meaning after it's already been deducted. For example, if your mutual fund investment gained 8.5% over the last year, and its MER was 2.5%, your reported return would be 6%.
Do you want to learn more about MERs and how they impact your investments? Speak with a member of our Wealth and Investment team today, or visit kindredcu.com. You can ask us anything!
Disclosure:
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters. Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Aviso Wealth Inc. ('Aviso') is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited. The following entities are subsidiaries of Aviso: Aviso Financial Inc. (including divisions Aviso Wealth, Qtrade Direct Investing, Qtrade Guided Portfolios, Aviso Correspondent Partners), Aviso Insurance Inc., Credential Insurance Services Inc. and Northwest & Ethical Investments L.P.