This article is to help you understand the management fees related to your mutual fund investments – and the value you receive for those fees.
When you invest in mutual funds, you’re getting more than just a portfolio of investments. With many funds, you’re gaining access to professional investment management and research.
Like all things that offer value, there are costs to owning mutual funds. Most of these costs are captured in the fund’s Management Expense Ratio, or MER. Watch this video or keep reading for a detailed breakdown of MERs.
An MER is expressed as a percentage of your total investment. For example, if a fund’s MER is 0.78%, you will pay $78 in management fees for every $10,000 you invest in a given year.
For illustrative purposes only: Fee-based example shown which does not include the cost of advice.
The fees included in an MER depend on which version of the fund you own. Here we’ll look at two of the most common versions: Series F and Series A.
Series F: The ‘separate fee’ approach
Series F mutual funds are available in fee-based accounts. The MER consists of any management fees, operating expenses and taxes. Fees for advice, access and service are not included. They are charged separately to the investor by the firm the advisor works for.
An MER of 0.78% for an F series mutual fund could look something like this:
For illustrative purposes only. Series F does not include fees for the advice and service you receive from your advisor. You’ll pay a separate fee for that. * Account fees are subject to federal and provincial taxes.
These fees cover any professional investment management, fund supervision, operational administration & service support.
Team
Offers access to the advanced skills and specialized education, experience and professional designations of the portfolio manager and their team of analysts, if any.
Tools
Can include access to research reports, insights from company executives, competitor information, market data, specialized analysis tools, proprietary tools and other important data.
Time
Pays for oversight of your investments. Active mutual fund managers and analysts dedicate their professional lives to researching and analyzing current and potential holdings for the mutual fund. This frees investors to enjoy their time doing something else.
*Please note depending on how you work with your advisor the dealer/ advisor compensation may not be included in the management fees ie. for fee-based accounts the dealer/ advisor compensation is not included in the management fee and is negotiated between the advisor and investor.
Each fund pays for day-to-day expenses including:
- Record-keeping fees – financial reports, tax slips and statements.
- Accounting and fund valuation costs – tracking flows in and out of a fund, calculating net asset values, purchases and sales of investments and related investment income, gains, losses and operating expenses.
- Custody fees – securely storing the ownership papers related to your investments to prevent theft or loss.
- Audit & legal fees.
- Reports and prospectuses – preparation of these reports.
- Filing fees – cost associated with filing reports and prospectuses with regulators.
Each fund is required to pay taxes on its management & administration fees.
Series A: The ‘all inclusive’ approach
With Series A, everything is bundled together – one price covers everything. And – no surprise – your MER will be higher with this approach. It covers everything from Series F plus a trailing commission. The trailing commission is paid to the investment dealer organization and financial advisor who sell the fund and provide ongoing financial advice and service to the investor.
An MER for a Series A fund could look something like this:
- Advice
Your advisor provides expert guidance on choosing investments. Some advisors may offer additional services, including planning for retirement, tax-efficient investment strategies and portfolio rebalancing. Rebalancing involves reviewing and updating your mutual fund investments on a yearly basis, or when markets go through major changes.
- Access
This covers the technology, systems and infrastructure that your advisor’s firm needs to distribute, sell and service your mutual fund investments.
- Service
Services include managing your account, creating your statements, confirming trades and more. These are the behind-the-scenes activities that keep you informed about your mutual fund(s). Your advisor’s firm must also keep regulatory filings up to date.
- Search this list for RBC GAM mutual funds. For other mutual funds, visit the fund company’s website.
- Look for the most recent Management Report of Fund Performance (MRFP). This document is publicly available on the fund company’s website.
- See a mutual fund’s Fund Facts document, which provides details on the fund’s management fee, operating expenses and other fees.
Not always. The MER represents most of the fees associated with investing in a mutual fund. Funds that invest in equities may also charge a fee to cover their trading costs. This fee is called the Trading Expense Ratio (TER). It may include brokerage commissions and any tax that applies on those charges.
A final word
An MER covers the professional management and service that help your investments work for you. The series of fund you own depends on how you work with your advisor. At RBC Global Asset Management, we offer both options to support the different ways that investors and advisors work together. Both give you access to the same professional investment management and research that would be nearly impossible to replicate on your own.
The most important thing? Understanding what you are paying for and feeling confident that you are getting great value for your investment.
Want to learn more? Talk to your advisor or explore our other resources on the costs of mutual fund investing.