Investment management fee covers portfolio management, including building and managing portfolios, monitoring market conditions, evaluating global investment opportunities, analyzing securities, and maintaining target allocations.
Trailing commissions covers advisor services, including financial needs analysis, goal setting, risk assessment, investment recommendations, progress monitoring, asset allocation, financial planning, and account reporting.
Fixed administration fees (or operating expenses) and other fund costs cover operational costs like bookkeeping, fund operations, valuation services, custodial services, and regulatory filings.
Taxes apply to the management fee, fixed administration fee, and other operating expenses as applicable.
7 minute read
Investment fees play a crucial role in shaping long-term returns, making it essential for investors to understand exactly what they're paying for. For investors holding mutual funds, these fees cover professional services including experienced portfolio management and access to financial advice to help grow investments over time. Let's break down the structure of these mutual fund fees, what they cover, and how they add value to help you reach your financial goals.
Understanding mutual fund fees
Managing a mutual fund is similar to running a business; there are costs involved. These costs include expenses for professional fund managers who assess which stocks and bonds to buy or sell in what quantities, determine optimal timing for trades, and conduct regular portfolio reviews to keep the fund aligned with its strategy – this cost is called an investment management fee. Another portion of the cost helps cover ongoing financial advice to help investors throughout their financial journey – this is called a trailing commission. These fees are captured in the fund's Management Expense Ratio (MER), which includes several components (see Figure 1). The MER represents the total cost of owning a mutual fund, expressed as a percentage of fund assets. And all fund prices and performance numbers already include these fees, so investors can easily see their actual returns.
Figure 1: What fees are included in the MER?
For example, a mutual fund with a 1.73% MER would cost $17.30 annually on a $1,000 investment. This fee is deducted and paid regardless of how the fund performs. You can find detailed MER information for all ScotiaFunds in their Fund Facts document and ScotiaFunds.com
There are the four main components to an MER:
Did you know?
MERs can vary between different series of the same mutual fund because of different payment structures for services.
Series A of a fund works like a cable TV bundle, where fees are packaged into the fund's price – this includes the trailing commission, resulting in a higher MER. On the other hand, Series F is like paying for streaming services separately – you pay your advisor through account fees instead of having them built into the fund's price, resulting in a lower MER.
Remember: Lower MER doesn't always mean cheaper overall; you need to add up all fees to compare fairly to ensure you’re not comparing apples to oranges.
Now that we understand how mutual fund fees work, let's explore some key benefits these fees provide: professional investment management and ongoing financial advice.
Investing can be complex, our team makes it easy
Professional portfolio management simplifies investing by giving you access to hundreds of investment opportunities without having to research or select individual stocks yourself. When you invest in a mutual fund, you benefit from a team of investment professionals who handle the complex work of building and maintaining portfolios aligned with your investment objectives.
The investment management fee gives you access to portfolio managers who handle essential tasks that would be time-consuming and complex to manage personally:
- Research and analyze hundreds of investment opportunities
- Build diversified portfolios across various asset classes
- Monitor and adjust holdings as market conditions change
- Manage risk through strategic portfolio construction
- Maintain target allocations through regular rebalancing
The Multi-Asset Management Team, who manages Scotia Portfolio Solutions, handles these complex investment decisions, allowing you to focus on your broader financial goals while knowing your portfolio is professionally managed and monitored.
Our advisors guide your journey and keep you on track
The trailing commission helps you access ongoing financial advice and regular portfolio reviews with your advisor – a relationship that delivers measurable value: 90% of clients who meet regularly* with their advisor say they receive recommendations that match their specific needs.
Furthermore, working with an advisor helps build confidence and maintain discipline in your investment journey. In fact, 86% of clients who meet with their advisor regularly* feel confident about their financial situation, while 85% say their advisor keeps them on track to meet their goals. This guidance proves especially valuable during market uncertainty, helping investors avoid common investing mistakes.
Figure 2: The impact of financial advice
Research shows that Canadians working with a financial advisor accumulate 1.8 times more assets in the medium term, and an impressive 2.3 times more over the longer term.
The study identified several factors contributing to this increased wealth accumulation:
- Higher savings rates
- Greater allocation to non-cash investments
- More disciplined financial behavior, such as resisting the urge to sell during market downturns
It's simple, financial advisors help investors increase their wealth… and the longer people have advice, the more their investments grow. For a detailed breakdown of your advisory fees, check the "amounts paid for advice and service on your account "section of your Annual Fee Disclosure Report.
