Great Investments and Fancy Yachts….it Must Be RRSP Season Again!

Nothing marks the beginning of the year like RRSP season and a plethora of mutual fund ads boasting performance with imagery that suggests you could be sailing a fancy yacht as a youthful retiree. 

Don’t get me wrong, the possibility of excellent investment performance and becoming the captain of your own expensive yacht sounds great, but many of these ads overlook the significance of the fees associated with mutual fund investments. It suggests to me that companies that don’t emphasize the competitiveness of their fees have something to hide.

You may have heard a few years ago that a study by Harvard University concluded Canadians consistently pay the highest fees for mutual funds of any industrialized country. We typically pay as much as 60% more than in the US and 200% more than in Europe. Another recent study (commissioned by a large mutual fund manager) concluded that the Harvard study was flawed and that Canadians pay fees that are much closer to our neighbors to the south. Whatever you believe, it’s still extremely important to understand the fees you pay and how they impact your overall returns. 

What you pay in fees can be confusing unless you understand some of the mutual fund industry lingo and what goes into the fee calculation. Take “management fees” and “management expense ratios”. These are terms that many people interchange, but they are definitely not the same. Management fees represent an amount taken from every invested dollar as payment to a fund manager for selecting the investments in the mutual fund. However, this is only one component of the overall fees you are charged. The fee you should really be interested in is the Management Expense Ratio or MER.

The MER includes the management fees plus other costs such as administration charges, legal, audit, marketing expenses and GST. The MER can also include sales commissions, both upfront and annually, that are paid to the financial advisor who sells you the funds. 

If the Harvard study I mentioned earlier is indeed accurate (and I believe it is), Canada’s average fund MER was 2.56%, versus 1.11% for the US. So, if a mutual fund had an annual rate of return of 5.44%, this means that the investments actually yielded a return of 8%, but then expenses of 2.56% were subtracted.

Reducing your fees can have a huge impact over time. Don’t believe me? Please consider the following example:

Imagine opening two RRSP investment funds and depositing a lump sum of $50,000 into each. The only difference between them is that one fund includes an investment fee of 2%, while the other offers a 1% fee. If both have an 8% annualized rate of return, by the end of 30 years, the fund with a 1% investment fee would be nearly $100,000 larger than the more expensive, but equally performing fund choice. That’s about the cost of that yacht in the ads, but it’s owned by the people that sold the more expensive investment, not you!

What to do? Start by understanding the total fees you pay on your current investments and shop around. When comparison shopping, the main number that you will need to compare is the average rate of return after all expenses are deducted. MER information on a mutual fund can be found in the prospectus or on websites like and

Also ensure that you are comparing apples to apples. Management expense ratios are typically highest for the specialty stock mutual funds and lowest for money market funds. Bond and balanced fund fall somewhere in the middle. Never try to compare the cost of one fund to another if the underlying investments are from different asset classes. Also keep in mind that the fees are typically lower from direct retailers and through large group plans.

My advice is not intended to replace that of a qualified investment expert who has reviewed your specific needs. If you are looking for more information on investment fees, CBA Financial offers lawyers excellent information on its website at

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