Did you know that investment fees can reduce your returns over time? These fees vary depending on the product or service you choose. While some fees may seem insignificant, they can have a considerable impact. It is therefore essential to clearly understand them in order to make informed choices.
What are the fees for?
Firms and individuals authorized to sell investments earn income from the fees you are charged.
Services and, in some cases, advice may be obtained from an adviser, investment dealer, robo-adviser, or on-line trading platform.
Your adviser is required to explain the charges to you when you open an account and before you carry out a transaction. If you use a robo-adviser or on-line trading platform, the information can be found in the fee schedule available on their website.
As an investor, each year you will receive an annual investment performance report showing:
- how your investments performed;
- what fees you paid your dealer for services and advice.
You must be notified of any change in investment fees, services or terms and conditions within 60 days of the date on which the change becomes effective.
Ask questions if the charges aren’t clear to you.
- Some fees may be negotiable. Talk to your adviser.
- Trading platforms and robo-advisers typically charge lower fees, but because they have standardized fee schedules, there is little flexibility for negotiating fees. Rebates or reduced fees may be available, however for large portfolios (e.g., over $100,000).
Direct fees
Direct fees are the costs that you pay directly and are linked to buying, selling or managing an investment. They may be paid by cheque or transfer or be deducted directly from your account.
While the terminology used may not always be the same, direct fees typically include:
A transaction fee or commission is a fee paid each time you buy or sell an investment. The fee varies depending on the type of investment and is usually lower (or is not charged) if you use an on-line trading platform.
Fees for the use and management of your account.
These include:
- A fee to keep your account active
- A fee when there’s been no activity in your account for an extended period
- A fee when you request a paper statement
- Fees for certain trust services
Fee charged to have your investments managed by a professional. This fee is based on a percentage of the value of your account and typically ranges from 1% to 2.5% of assets under management. It pays for the time and expertise of the specialists assigned to your portfolio.
Flat or hourly fees charged for specialized advice that are typically based on service complexity. Some professionals, including financial planners 
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Indirect fees
Indirect fees are costs you don’t pay directly. They are collected by the fund manager or other parties involved. Even though you don’t pay these fees out of pocket, they still reduce the returns on your investment. Indirect fees are prevalent in mutual funds and exchange-traded funds (ETFs).
Each mutual fund and ETF charges investors a fee to cover its operating expenses.
This fee covers such things as:
- fund administration
- investment management
- marketing
- adviser commissions
- legal and audit services
The fee is based on a percentage of the assets under management:
- for mutual funds: 1% to 2.5%
- for ETFs: 0.05% to 0.5%
A portion of the management fee is used to pay for the advice and services provided by the dealer:
- For mutual funds, trailing commissions range from 0.25% to 1% per year.
- For ETFs, trailing commissions range from 0.05% to 0.5%.
The trailing commission is an ongoing charge you pay for as long as you own the fund. Order execution-only (OEO) platforms, including on-line platforms, have been prohibited from charging trailing commissions since June 1, 2022.
Some funds charge a fee at the time of purchase or sale (redemption). Here’s what you need to know:
- At time of purchase: Front-end load or initial sales charge, typically 0% to 5%.
- At time of sale: Deferred sales charges (DSCs) have been banned in Canada since June 1, 2022. However, if you bought a fund with DSC option before that date, a DSC may still apply at the time of redemption.
These charges must be clearly indicated on your monthly or quarterly statements and your annual investment statement.
Do you own funds?
Refer to the Fund Facts document for information on the fees you are paying.
Scholarship plan fees
When you invest in a scholarship plan (or group RESP), it’s important to know what fees apply, as they can affect the return on your savings. Scholarship plans usually have an enrolment fee that is typically payable in instalments in the first few years of your investment in the plan.
Other fees may also be charged, including:
- Annual management fee: based on a percentage of assets under management, typically ranging from 0.5% to 1.5%
- Administration fee: flat fee of $0 to $50 per year
- Other specific fees: including fees for certain services or changes to the plan
Your statements will show:
- portion of the enrolment fee still owing
- the annual management and administration fee
- any other applicable charges
Before purchasing a scholarship plan, read the materials provided in order to understand the fee structure.
Why you should pay attention to investment fees
Investment fees have a direct effect on your returns (or losses) and can vary across products or services. Higher fees do not guarantee better returns.
Once you have understood the fees, you can:
- estimate the true cost of your portfolio
- compare equivalent, lower-cost products and services
- ask your adviser to provide clarification and identify which fees are negotiable so that you can make an informed decision
- if you are a self-directed investor, consult and compare the fee schedules for the various on-line trading platforms, considering your profile and needs
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Do you have a question or concern about this topic?
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End of the Information