Understanding Your Investment Statement

Prior to this, such fees were disclosed in a mutual fund prospectus, but on a percentage basis. Fund Fact sheets must now be presented to potential investors prior to the purchase of a mutual fund. This document details all pertinent information on the mutual fund being recommended, including all fees associated with the purchase.

The belief of industry regulators is clients are not aware of the fees they pay when they purchase mutual funds. They feel the consumer does  not know how much they pay and why. In the case of a client making a mutual fund purchase, different funds charge different levels of fees based upon complexity of management. These fees are included in what is known as the management expense ratio, or MER of the mutual fund.

A global equity mutual fund might charge an annual MER of  anywhere between 1.90% - 2.50%.  This fee is deducted daily from the Net Asset Value, or NAV of the mutual fund. The NAV is the unit price of the mutual fund, say $10.00 per unit. So in the case of the 2.5% equity fund, 1 X 365 of 2.5% is deducted daily. The unit price you see in the paper, on the internet and/or your statement from your investment firm is net (after) of all fees.

In our example, the mutual fund company (the manufacturer of the product) retains 1.5% of the 2.5% MER. The remaining 1% is paid to the mutual fund dealer (the distributor). Of that 1%, the advisor/broker receives their portion of that from their dealer. So the 2.5% goes to pay for the portfolio management, reporting, training, staffing and general expenses of the mutual fund company. In turn, they pay the distributor, who in turn pay their distribution system, the advisor/broker.  The advisor/broker uses their portion of the MER  to run their business. 

There are many investment options open to the consumer, from mutual funds, exchange traded funds, options, segregated funds, individual securities, term deposits and/or guaranteed investment certificates (gic’s). All investments carry some type of fee, whether it is an upfront commission paid at time of purchase or sale, embedded compensation (trailing commissions included in the MER) or a charge for fee for service.  

Investment dealers may charge additional fees outside of the MER, such as but not limited to annual self - directed admin fees, gic processing fees and/or redemption fees when an account is transferred or closed. These fees would also be disclosed on your investment statement.

For any additional information, please email Bob at robert.davies@manulifewealth.ca

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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.