Growing Your Wealth: Managing Investment Fees

Effective January 1, 2017, new rules compel investment firms and advisors to clearly outline the costs of any funds held by their clients. Previously, many investment fees were hidden within incomprehensible prospectuses and financial reports that most investors rarely read.

How do the various fees you pay on your investments – whether you do it yourself or use professional management – affect your ability to accumulate real wealth?

Related: CRM2: A new age of enlightenment for investors?

Whether included in funds you’ve selected as a MER, added on as a brokerage commission when you buy or sell a security, or charged by an advisor, as an investor it’s important to:

  • be aware of exactly how much you are paying in fees,
  • reduce excessive fees that are dragging down your returns, and
  • consider how much value you are getting for the fees you are paying, such as financial, tax and estate planning or a winning portfolio

Here are some of the most common investment fees:

Managing Investment Fees

Brokerage account fees

Annual fees: May be charged for accounts holding less than a minimum balance. They may be waived under certain conditions.

Subscription fees for premium research tools: Most on-line brokerages have free research tools that are sufficient for all but the most experienced and sophisticated of investors.

Trading commissions: Charged when you buy or sell stocks or ETFs. Some brokerages offer commission free trades on a limited selection of ETFs, some have no-cost ETF purchases only. Some brokerages offer discounts for active, high volume traders.

Mutual Fund Fees

Sales loads: A sales charge on some mutual funds which is paid to the broker or salesperson who sold the fund.

  • Front load – An up-front fee taken immediately from your new contribution, often can be negotiated.
  • Back-end load – A deferred sales charge paid when you redeem your funds, the amount reduces the longer you own the funds until it eventually gets to zero. Now, thankfully, being phased out.

Short-term redemption fees: This is charged when you redeem a fund within a short period of time after the purchase – usually 7 – 30 days. It’s to discourage short-term trading.

Expense ratios

These are annual fees charged by all mutual funds, index funds and exchange-traded funds. They are designed to cover operating costs including management and administrative costs.

Trailer fees are paid by the mutual fund company to the broker for ongoing services.

Funds that are actively managed usually carry higher expenses than index funds and ETFs which passively track an index. Global and sector funds will carry higher fees than bond and Canadian equity funds.

The fees and expenses that a fund pays are deducted from the fund before returns are calculated.

Management or advisory fees

If someone is managing your money – whether a human financial advisor or a robo-advisor – you are paying for it.

These annual fees are typically a percentage of the assets under management and can include the cost of advice as well as trading commissions. Some advisors also earn a commission from the sale of specific investments.

You need to understand how your advisor is paid and how that impacts your investment.

Other investment fees

Some other fees that you may come across are:

  • Fees for paper statements and trade confirmations – opt for no cost e-services.
  • Account transfer fees – some financial institutions will reimburse these fees for their new customers.
  • Full or partial withdrawal fees – usually for making a withdrawal from your RRSP.
  • There is often a fee charged to you when you purchase a bond through a broker. Bonds are traded between financial institutions at a wholesale price and then sold to the retail consumer at a markup.
  • Principal protected notes, which normally guarantee the principal if held to maturity, have fees than include commissions paid to the advisor, ongoing management fees and performance fees to the portfolio managers.

Lower fees, smarter savings

Many investors are unaware of the fees they pay for their investment products. Until recently it was hard to track how much we were paying. Account maintenance fees and asset management fees are often subtracted directly from our portfolios before we receive our investment returns. Commissions are usually rolled into an investment’s purchase price or subtracted out of the sales proceeds.

We can’t avoid all investment fees. If we buy mutual funds or hire financial advisers, we should fully expect to pay for their services. Instead, the goal is to understand what we are paying – and to know how the cost of investing can impact your real returns over time.

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  1. Phyllis on March 29, 2017 at 10:33 am

    We are paying high fees and would like to get fee-only service from you. How do we contact you for that?

    • boomer on March 29, 2017 at 11:49 am

      Thank you Phyllis. You can start by clicking on the link at the top of the page.

      • Phyllis on March 29, 2017 at 4:50 pm

        Ok I just tried sending a message again. I have tried quite a few times and it seems not to reach you. Hopefully you will get it this time!

  2. Gert on March 31, 2017 at 6:20 am

    Hi Marie,

    Thanks for the info and although fees are to be expected I think there is still cause for concern.
    For example: I’ve been told not all fees are being reported to customers just yet. BMO told me the fee they are disclosing are the ‘Trailing Commission’ (as reported on monthly statements). It was implied this number was only about half of what the actual fees are. Further I was told by BMO that I’m not paying those fees and that it’s only for my information. They say the money is paid to “them” by a “third party” so I’m really not paying a fee.
    So I’m wondering what has actually changed in terms of fee reporting? They make it all so confusing and keep me second guessing, they make it sound like I’m not paying any fees…ya right!

    • boomer on March 31, 2017 at 9:36 am

      Hi Gert. It’s true that the trailing commission is paid to the broker or salesperson by the mutual fund company, but it does form part of the MER so, in an indirect way, you are still paying it. On the “Fund Facts” sheet you will see the MER plus trading expenses which equal the fund expenses expressed as a percentage. The percentage, say 2.5%, seems low when given that way, but you can see exactly what you are paying by multiplying it by your investment holdings to get the actual dollar amount of the fees you are paying. I don’t know why the full annual dollar value is not disclosed to you. A lot more work needs to be done.

      • Gert on April 1, 2017 at 7:02 pm

        Thanks Marie,
        I plan on educating myself moving forward. I’m almost reading ‘Unshakable’ by Tony Robins. I’ve contacted their counter part in Alberta ‘Cornerstone Investment Counsel’ I’m meeting wit their CEO later this month. I’m hopeful I’ll be on the right track soon. I’ve also been told Vangard is a good place to self invest so I’m looking there as well.

        Thanks again for the great information over this last year.

  3. Denis on April 1, 2017 at 10:16 am

    I learned in my 1st year of investing that mutual funds make money for the mutual fund company. If you must, diversify with low cost ETF’s. They are even optionable if you want to leg in via short put options.

    I invest myself as long as I beat my wife’s financial adviser’s 6% return. Otherwise give my money to him and enjoy life 😉

  4. APF Blogger on April 23, 2017 at 7:54 pm

    I have been investing in stocks and/or mutual funds and I am embarrassed to say that it took me 15 years to actually calculate what I paid in fees. It was a very helpful exercise. When I figured out the fees as a percentage of assets in my discount brokerage, for instance, it confirmed my decision to invest new money through a robo-advisor. The robo has a higher fee, but the value for what I get (simplicity, automation, diversification, etc…) is worth paying a bit more in fees.

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