You could be paying someone thousands of dollars a year and not know it!
What is MER?
It’s the ‘management expense ratio’, or how much money you’re paying the bank to manage your investments. This is usually declared when you read about the fund but you’ll never see it on your online or paper statements. It’s considered a management fee that is taken out before your return is calculated (aka the amount you see in your account). This makes it sneaky.
Why you should care
You don’t see the fee so it can be easy to forget it’s being charged. The table below shows the management fee for four representative funds. The difference is huge! This money is coming straight out of your gains every year.
|Fund Name||MER|| $52,000*
(Max TFSA contribution)
|TD Canadian Index Fund-e||0.33%||$172 per year||$3 per year|
|Tangerine (all funds)||1.07%||$556 per year||$11 per year|
|TD Canadian Equity Fund – A||2.18%||$1,134 per year||$22 per year|
|CIBC Balanced Growth||2.44%||$1,269 per year||$24 per year|
Three things to do right now:
- Look up the MER on each of your funds
- Calculate how much you are paying (MER * how much you have invested)
- Decide if it’s worth it. Is it still when you have double that money?
If the dollars alone didn’t do it for you here a few more reasons you should care:
You work hard for your money! If you are like me most of your waking hours are spent at work. While I like what I do I am doing it to make money to spend it on the things I need and want. I don’t do it to pay for my banker’s holiday.
1-3% adds up! Your assets should grow every year. This means that your fees grow every year as well. Just reading this blog means you are trying to save more money. The dollars spend on high MERs add up.
Rational people don’t pay more! If you wanted to see a movie and theater one sells you tickets for $3.30 and the theater next door sells them to you for $21.8, which do you, pick (the MER on TD index versus TD mutual fund on $1,000 savings over a year)? It’s a no brainer for most people.
It is never too late! Most MER is calculated every day. So the earlier you switch to a lower fee the better for your savings! By the same vein the longer you wait the more you pay. Think of it like late movie rental fee. Each day you waited to return the movie you paid more – each day you wait to move your money you are paying higher fees.