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Fees

What types of fees are there?

Fees are a fact of investing life. It’s important to understand and negotiate the best fee structure for your investments. Since the fees you pay will take away from your returns, you’ll want to make sure that you don’t pay more than you have to. This section describes the types of fees you may be asked to pay.

Broker/Dealers

  • Management feesglossary icon. Portfolio managers and many advisors charge a fee based on a percentage of the portfolio’s value (around 1.5% – 3%). This fee is negotiated at the beginning of your advisor/client relationship and pays for the cost of managing your overall portfolio. In return, you receive recommendations and advice tailored to your investment goals.
  •  Brokerage commissionsglossary icon. These are fees charged per transaction based on buying and selling stocks and bonds. Commissions vary widely between brokerage firms. The risk with a commission-based account is that an unscrupulous advisor could trade more than is warranted to increase their income.
  • Discount broker fees. Discount brokers vary in the services they offer and the fees they charge. Generally, a basic fee per trade is charged, but additional fees may also be charged related to the number of trades, the size and the scope of the account.
  • Fee for service. For fee-based accounts, the advisor may both charge a management fee and take a commission for individual transactions. For fee-only services, the advisor charges a set (often hourly) rate and does not collect commissions or referral fees. Fee-only advisors can avoid conflicts of interest and provide unbiased advice because they do not earn fees from the products they recommend.

Mutual funds

  •  Management expense ratio (MER)glossary icon. Each mutual fund pays an annual fee to the manager for managing the fund. Each fund pays its own operating expenses, including legal, accounting, and management expenses. The MER is the total of the management fee and operating expenses expressed as a percentage of the fund’s value. For example, if a $100 million fund has $2 million in annual expenses, its MER is 2%. The higher the MER, the more you indirectly pay for management and administration. MERs may be high because the fund manager actively researches, trades and manages the fund and there are high operating costs, such as legal fees. The higher the MER, the more the fund will have to earn in order for you to make money.
  • Mutual fund trailer feesglossary icon. The salesperson who sold you shares or units of a mutual fund often receives an annual commission from the fund manager, which the fund company pays out of the management fee you pay them, for as long as you own units of the fund. If the dealer is receiving this fee—usually from 0.25% – 1%—your advisor should provide you with ongoing services, including answering your questions about the fund’s performance. Unusually high trailer fees may bias the advice you receive from the advisor. Ask your advisor directly if they will receive a trailer fee and how it compares to fees they receive from other funds.
  • Sales charges or front-end loadglossary icon charges. If you pay a fee when you buy the fund, it’s called an initial sales charge or front-end load fee. Fees paid at the time of purchase are generally 0 – 4%. If you come across a fund with no sales charges of any kind, be sure to compare other expenses, such as the MER, which may show that the no fee fund is not a better deal.
  • Back-end load or deferred sales chargeglossary icon . Some mutual funds only charge you a fee when you sell, not when you buy. Fees paid at the time of redemption are generally 0 – 6%, depending on how long you have held the fund. Fund companies do not charge the fee if you hold the fund for the required number of years.
  • Transaction fees. These are indirect fees that a mutual fund pays to a brokerage firm to execute its buy and sell orders. These fees are not included in the MER, but are subtracted before the fund’s return is calculated.
  • Short-term trading feesglossary icon. If you sell a fund within a certain period, normally around 90 days, the fund will likely charge you a fee.  The purpose of this fee is to discourage investors from using mutual funds to make a quick profit by timing the market, and in the process decrease the value of the fund. 
  • Other fees. The fund may charge you a fee if you want to to switch funds, start a registered plan, or open or close an account.


Summary: You need to know what direct and indirect fees you are paying for your investment, and/or for advice. Many fees are negotiable. It’s your job to find out what you are paying and what you are getting in return for the fees. Don’t hesitate to ask questions and remember to factor all fees into your return calculations. Ask your advisor for an annual or semi-annual report of all transactions in your account including all fees, not just purchases and sales.

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