Understanding Fees

There are fees and other charges you will pay when you invest. It’s important to know what you’re paying for your investments and/or the investment service provider you are using.

Investment fees are a part of investing. Some may be negotiable, so it’s important to read the information your investment service provider gives you.

As a Canadian investor, you should receive detailed information at least once a year that shows the fees paid to your investment service provider for their services and/or advice. Securities laws, known as the Client Relationship Model, Phase 2 (or CRM2), require investment firms to provide all clients with a detailed annual report about the operating, transaction, and related fees and other charges.

Ask questions if you’re not clear on what you’re paying for investments and/or advisory services.

Two types of investment fees you may come across are: direct fees and indirect fees.

Your investment service provider, such as a registered investment advisor and their firm, a robo-advisory service, or a self-directed investing service, receive fees for the services and advice they provide.

Simply put, direct fees are fees you pay directly.

They may be paid by cheque, electronic funds transfer, or other similar manner, or they may be deducted directly from your account.

While the language that different firms use can vary, direct fees include:

• Operating charges: fees associated with maintaining and using your account.
• Transaction charges or commissions: fees for buying and selling investments in your account. Discount brokerage services charge fees for trades as well, usually at a lower rate than a full-service advisor.
• Management fees: fees, usually calculated as a percentage of your account value, for all of the services associated with managing your investments. These fees compensate the managers of your investment account for their time and expertise.
• Fee for service: some registered advisors charge a set rate for their services.

Indirect fees are not paid by you directly, but rather by third parties in connection with the investments in your account.

Again, while the terminology can vary between firms, indirect fees include:

• Management Expense Ratio, or MER. Each mutual fund and the exchange-traded fund pays its own operating expenses. The MER is a total of all of these expenses expressed as a percentage of the fund’s value.
• Trailing commissions. Most mutual funds and some exchange-traded funds pay a trailing commission (or trailer fee) to your investment service provider. It’s an ongoing fee, payable for as long as you hold the fund. This fee is how the provider pays for the services and advice you receive related to that fund. Dealers that do not recommend investments, such as online trading platforms that allow self-directed trading, will not be allowed to charge trailing commissions after June 1, 2022.
• Sales charges: Some mutual funds charge you when you buy your units or shares – these are called front-end load or initial sales charges. Others charge you when you sell – these are called deferred sales charges or DSCs. On June 1, 2022, DSCs will be banned across Canada.

Ask your registered investment advisor or check with your service provider for information about fees and account charges if you have questions.

So why should you pay attention to your investment fees?

Investment fees impact your overall returns.

When you understand your fees, you can evaluate the true cost of the investments in your portfolio and the services you receive from your investment advisor or service provider.

Knowing what you pay to buy, sell, or hold an investment in a given year can help you make better investment decisions.

If you have questions, the BC Securities Commission can help.