Fees and Costs

When you invest, it is important to understand fees and costs. Fees are typically charged by investment firms or registered investment advisors to cover costs associated with administering investment products, operating your account, making transactions on your behalf or providing advice.

Here's a breakdown of some common fees and costs:

Management Fees: For mutual funds, exchange-traded funds (ETFs), and other managed investment products, there are management fees. These fees cover the costs of managing the fund's portfolio and are usually expressed as an annual percentage of the assets under management (AUM).
MER (Management Expense Ratio): MER includes not only the management fee of an investment fund but also other expenses like administrative costs, trading costs, and taxes. It represents the total cost of owning a mutual fund or ETF.
Trailing Commissions: A trailing commission is paid by the fund company to the dealer each year as long as the investor stays in the fund. In most cases, a portion or all of this trailing commission is then paid to the individual advisor. This fee comes out of the management fee, not out of your account, so you may not have noticed it. However, these fees reduce the amount of the fund’s return. Since different fund companies and different funds pay different trailing commissions it may influence an advisor’s investment recommendation.
In September 2020, the Canadian Securities Administrators (CSA) carried out a trailing commission ban for dealers that do not make a suitability determination (i.e., online do-it-yourself trading platforms where investors buy and sell investments on their own).
Front-End Load and Back-End Load: Some mutual funds charge a front-end load (commission when buying). No-load funds do not charge these commissions.
Some mutual funds offered before June 1, 2022 were deferred sales charge funds where the mutual fund company paid an upfront commission to the advisor and investors could be charged a fee when they wanted to sell the fund or withdraw their money. This fee is referred to as the deferred sales charge or the redemption fee. As of June 1, 2022, deferred sales charge (DSC) funds are banned.
If you bought a mutual fund with the DSC option before June 1, 2022, you will likely not see any changes with those investments. The redemption fee schedules on your DSC holdings can run its course. If you hold your fund until the end of the redemption fee schedule, you won’t pay a fee when you sell your units or shares. But you will be charged DSC fees on holdings sold before the expiry of the redemption fee schedule.
Short-Term Trading Fees: If you sell a fund within a certain period, (i.e., 90 days) the fund may charge you. The purpose of this charge is to discourage investors from using mutual funds to make a quick profit by timing the market, and in the process decreasing the value of the fund.
Brokerage Commissions: These are amounts charged per transaction based on buying and selling stocks, bonds and ETFs. Review your account statements and trade confirmations regularly to make sure that all trades made in your account were justified.
Trading Costs: Beyond brokerage commissions, investors may incur additional costs associated with trading, such as bid-ask spreads, which are the differences between the buying and selling prices of a security.
Discount Brokerage Fees & Charges: Discount brokers vary in the services they offer and the amounts they charge. Generally, they charge a basic amount per trade, but may also charge additional amounts related to the number of trades and the size and the scope of the account.
Account Fees: Brokerages may charge account maintenance fees, trustee fees, inactivity fees, or fees for certain services like receiving paper statements. These vary among financial institutions.
Fee for Service: For fee-only services, advisors charge a set rate and do not collect commissions. This set rate can be based on the number of hours spent, a flat rate or a graduated rate based on the amount of money you invest.
Other Fees: Depending on the nature of your account and your investments, there may be other fees that apply to your account. Examples of such fees include interest on borrowed funds, currency conversion fees and taxes such as withholding tax, taxes on income your investments generated (interest and dividends) and capital gains (taxes levied when you sell your investment on the profit you made).

When You’ll Learn About Fees & Charges

Advisors and investment firms must explain the fees and charges that you will have to pay:

When you open an account.
Before accepting an instruction from you to buy or sell an investment product.
After you buy or sell an investment, in your monthly or quarterly account statements.
Within 60 days of a change in the fees that you would be charged.

Securities laws known as Client Relationship Model Phase 2 (CRM2), also require investment advisory firms to provide all investors with a detailed annual report (Charges and Compensation Report) about advisor fees, charges and compensation as well as how their investments have performed (Performance Report).

What to ask your advisor

It's important for investors to understand these fees and costs because they can significantly impact the overall returns (or losses) on investments.

Making it a habit of asking your advisor what you paid to buy, sell, or hold an investment can help you make more informed investment decisions and assess the true cost and suitability of the investments in your portfolio and the services you receive from your registered investment advisor.

Investors suffering from financial hardship should speak with their registered investment advisor about relief options as some fees and other charges may be negotiable.

If you use a robo-advisor or discount brokerage service, be sure to understand what you are paying for when using their services. Even though these fees may be less than you would pay a registered investment advisor, you may find unexpected fees or charges that can impact your investment portfolio.

Helpful Tools

Fee structures may evolve, so staying informed about changes is essential.

The Canadian Securities Administrators (CSA) published the following short videos: