19: Investment Fees
If you’re in a position to save money, and you’re either starting out as a new investor or have been investing for a long time, this episode is for you.
Today, we’re looking at how much it costs you to invest, and we’ll be focusing on mutual funds and Exchange Traded Funds (ETFs), because they’re super common across Canada. We’ll look at what exactly you’re paying for (and what you’re not)and the impact it has on your money over time.
Spoiler alert: the impact? It’s enormous.
There are so many different kinds of fees you might be paying to invest and so many different ways to pay them that it’s completely normal to have no idea which ones you, specifically, are paying. But we’re going to do our best to change that today.
The Management Expense Ratio
As a refresher, courtesy of episode five of this podcast, mutual funds and Exchange Traded Funds are investments that own investments. You and a whole bunch of other investors buy units in a mutual fund or an ETF, and the managers of those funds in turn buy stocks or bonds. You own tiny pieces of stocks or bonds in proportion to how many units of the fund you own, and earn (or lose) money based on how well those stocks and bonds do.
You and all the other investors who also own units of the fund pay the costs of the fund, which are expressed as the Management Expense Ratio (or MER). Taken altogether, the management expense ratio is the total of all of those costs divided into the total amount of money in the fund. There are ETFs that cost 0.05% per year to own, and there are mutual funds that cost 3% or more.
Each fund is required to publish their MER in what’s called a “Fund Facts” document, which you can find really easily online. Each fund also charges sales tax, which is usually not included in the MER.
What are those costs you and your fellow investors pay that make up the MER?
Well, for starters, someone has to pick out what investments the fund buys, when to buy them, and when to sell them. That’s the management fee.
Then there are the administration costs. Someone also has to do the bookkeeping and accounting for the fund, prepare statements for everyone who owns units of the fund, do all the work and reporting to stay on side with the regulators, pay for legal, trading, and custodial fees, and let’s not forget, create marketing materials and pay to get them in front of the eyeballs of investment advisors and sometimes investors themselves.
There might also be a trailing commission, which is money paid by the fund to the dealer (that’s the company that actually sold you the fund), who then pays some or all of the money to the actual advisor who sold the fund to you, for doing all that selling. These trailing commissions pay for the advice you receive “for free”.
And let’s not forget that most companies that own investment funds need to extract a profit that they can put into the pockets of their shareholders. No matter how well or poorly the fund itself is performing, the fund company is going to make damn sure that they’re making more money than they need.
Advice Fees
Some institutions charge another fee on top of what you pay for the funds you own. This fee is usually much more visible than the MER because it’s withdrawn directly from your account, usually every month or every three months.
For example, a robo-advisor might charge you 0.25% of the account value each year in addition to the cost of the funds you own, to pay for a package of funds that they select and rebalance for you and some limited advice.
In contrast, a full service investment manager might charge you 1% of your account value for advice in addition to the funds they select for you.
You should see this fee listed on your statement (although it’s likely you’ll only see the dollar figure for that month, not the full annual cost), and in your annual statement of cost and performance.
What fees don’t pay for
Investing fees do not pay for performance. While plenty of funds “outperform” (that is, do better than average), picking which fund will outperform reliably, and in advance, is a loser’s game.
In fact, there is overwhelming evidence that the single best predictor of how well a fund will perform in the future is how low the fees for that fund are.
The truth is that in investing, you get what you don’t pay for.
The impact of high fees
The more you pay someone else to invest for you, the less you keep for yourself. Let’s use an example to demonstrate how this works in real life, with two real funds. This isn’t investment advice, it’s math so don’t take it as a recommendation to buy or sell anything.
Canada’s largest mutual fund is the RBC Select Balanced Portfolio. It aims to own about 60% of its assets in Canadian, US, and international stocks and about 40% in government and corporate bonds and cash. If you own units of that fund, you pay 1.94% per year in management expenses. You also contribute to the $5.79 billion dollars RBC extracted from its customers in the first three months of 2026 alone.
Vanguard’s Balanced ETF aims for the same 60/40 mix. If you own units of that fund, you pay 0.24% in management expenses. Vanguard is owned by its funds and therefore owned by the investors who own the funds, so any extra money they make is used to decrease costs rather than increase profits.
Let’s pretend that each fund’s underlying investments perform exactly the same before fees (they won’t, but their top ten holdings are similar enough that it’s a simple, if not exact, comparison). Let’s also pretend that the MER is the only fee you pay.
If you invest $50,000 today and then $100 per month for the next 25 years, and earn an average return (before fees) of 5.4%, you’ll end up with $237,461 at Vanguard. You’ll have paid $12,545 in fees.
At RBC, you’ll end up with $165,126. RBC will have kept $84,879 of your money in fees. What will they have given you in that time that’s worth the $72,000 difference you paid them?
Maybe what you get from RBC or some other bank fund over 25 years is worth almost $85,000. Only you can be the judge of that. But here’s the kicker: you have to judge.
Whether you’re just starting out, or you’ve been investing for a long time, you have to think about what you will pay or have been paying, and what you will get or have been getting, and compare it to what you’ll pay for what you’ll get elsewhere.
Otherwise, their marketing team wins, and you lose.
Resources
Ready...Set...Money Episode 5: Investing
Deep Dive into Sales Incentives at Your Local Bank (a ~45 minute interview about, among other things, the cost of investing and what it pays for)