Understanding Your Management Expense Ratio (MER)

**This post may contain affiliate links. I may be compensated if you use them.

One of the most commonly talked about topics in the personal finance world is fees. Most people realize that you’re going to pay a fee since you’re getting a service, but you may be shocked to find out how much you’re paying in fees. Eliminating small daily fees are great for improving our cash flow, but what all investors need to pay more attention to is the management expense ratio (MER) which is charged with many of our investments.

Interestingly enough, Canada has the highest average management expense ratio in developed markets at 2.14%. For most of us, paying an average of just 2.14% for a mutual fund sounds like good value, but an MER should be viewed like those small daily fees we’ve been trying to cut out. I’m generalizing here, but if you were able to reduce your MER, you could potentially put tens of thousands of dollars, if not hundreds, back in your account.

What is a management expense ratio?

A management expense ratio is a fee that investors need to pay to the investment provider for running certain investments such as mutual funds or exchange traded funds (ETFs). A quick example would be if you invested in a mutual fund with a 2.5% expense ratio, your cost would be $25 for every $1,000 invested. Sounds pretty straight forward but it’s a little more complicated than that.

MERs usually consist of a few different things with the management fee usually being the largest fund expense. Since someone actually has to run the fund, that’s where the management fee comes in. What gets tricky is sometimes your advisor may tell you they get a very small percentage for their services; well that price is part of the larger management expense ratio that you pay which obviously adds up over time.

The MER also includes operational costs such as office supplies, record keeping, legal fees etc. Although the MER covers most expenses, there can be separate fees that we pay such as front or back-end loaded funds which are commissions paid separately from the MER. This doesn’t apply to all funds so always ask for the details.

Management expense ratios are different from management fees. MERs are what the fund charge while other companies such as robo advisors may charge you another management fee on top of the MER. This management fee usually isn’t more than about .50%, but if you combine that with an index fund that charges a .50 MER, your total fees for that found would be 1%. That’s still much lower than mutual funds.

How does the management expense ratio affect me?

Some of us still believe that we’re getting value for paying a small percentage of our investments, but let’s take a look at how the MER eats into our returns. The following chart assumes the following:

  • $100,000 initial investment
  • $5,000 annual contribution
  • 5% annual rate of return
 2.5% MER1% MER.50% MER.20% MER
5 years$134.546.31$144,021.68$147,147.06$149,041.53
15 years$237,685.41$281,775.27$296,317.97$305,007.50
25 years$389,361.05$499,681.82$536,070.28$557,813.05

Obviously, the lower your MER, the more money you have in the end. The MER percentages I’ve chosen are actually the average of the most common investments and are broken down as follows:

  • 2.5% – Average mutual fund MER
  • 1% – About the cost of using a robo-advisor or Tangerine investment funds
  • .50% – About the cost of using TD e-Series index funds
  • .20% – About the cost of a self-directed ETF portfolio

As mentioned, there are a few other costs associated, and if you’re a self-directed investor you will incur some trading fees so the above chart isn’t an exact science. The idea is to give us a general idea of why we should pay attention to our MER.

The difference between paying 2.5% and .20% MER over the course of 25 years would be $168,452.00 in our above scenario. Think about how far that money could go in our retirement years.

When people see the potential savings, they start thinking about transferring their TFSA and RRSP.

How much am I paying?

Now let’s look at it strictly from a fee perspective. The following chart shows how much money we pay for our management expense ratio.

 2.50% MER1% MER.50% MER.20% MER
5 years$15,710.01$6,234.63$3,109.25$1,241.78
15 years$73,100.23$29,010.37$14,467.67$5,778.14
25 years$182,909.94$72,589.17$36,200.71$14,457.94

An average mutual fund will cost you $182,909.94 in 25 years, is that not insane? It’s impossible to get our MER down to zero, but you can see what a HUGE difference it makes on our bottom line. Most of our investment timelines last longer than 25 years, so by the time we retire we could have paid hundreds of thousands of dollars in fees if we stuck to regular mutual funds.

I’m not expecting everyone to become DIY-investors, but there are so many different options such as robo advisors and Tangerine investment funds, there’s no reason we can’t reduce our management ratio. Seriously, it’s so easy to transfer your RRSP to a robo advisor such as RBC InvestEase, Justwealth and Wealthsimple

Should you switch funds because of the MER?

The short answer is yes. There are so many all-in-one ETFs these days that charge an MER of less than 0.50%, that it makes perfect sense to switch. As I’ve already pointed out, the savings can be considerable. That said, you do need to do some basic research first to understand why buying index funds with a low MER is the ideal solution. For reference, all of my investment accounts have a single ETF.

However, if you’re a high net worth individual who gets additional services from your financial advisor such as estate and tax planning, then the additional fees may be worth it. That said, if you’re getting those kinds of services, you’re probably better of paying a fee only planner.

Final thoughts

I understand that the majority of people have no interest in managing their money, but I do believe most people would prefer to have more money when they retire. The money we save by reducing our management expense ratio can greatly improve our lifestyle when we retire and that’s why we should take MERs seriously.

Understanding Your Management Expense Ratio (MER)

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. kathywaitesaskatchewan on March 7, 2016 at 9:07 AM

    Hello Barry, Great article, from July some fees will be discussed on statements and I hope that will encourage people to be proactive. It is possible to use a flat fee investment advisor for about 1% and many now have no minimum account size . Kathy Your Net Worth Manager http://www.yournwm.ca

    • Barry Choi on March 7, 2016 at 9:11 AM


      Yes hopefully CRM2 will really open the eyes of investors. Many advisors have done great job about being open about their fees and there are more and more options these days for investors to reduce their fees.

  2. Mike on January 30, 2020 at 2:23 PM

    Hi Barry. Correct me if I’m wrong but my understanding is that published mutual fund and ETF performance figures are net of (I.e. after subtracting) MERs. That being the case, I understand I’m better off buying a higher-MER, actively-managed mutual fund if it has consistently outperformed a lower-MER passively-managed index ETF over the long term. That of course assumes I expect that outperformance to continue. Do you agree with that approach?

    • Barry Choi on January 31, 2020 at 12:07 AM


      You’re indeed correct, but there are two problems with your suggested strategy. #1) Past returns are not indicative of future performance #2) The odds of you picking a mutual fund every year that consistently beats the index is unlikely to happen (statistically wise at least).

  3. Stop Screwing Your Retirement! - Money We Have on April 13, 2020 at 10:18 AM

    […] also want to pay attention to the fees you’re paying. A 2.5% management expense ratio (MER) for mutual funds may sound reasonable at first until you realize you could be saving hundreds […]

  4. Dom on November 16, 2020 at 6:12 PM

    Is there another credible site besides SEDAR to find out the MER and TER? Whenever I have tried SEDAR it leaves me frustrated.

  5. Michaela Douglas on January 17, 2022 at 6:48 PM

    I am a university student whose parents died and I invested with one institution because they told me that they would just charge me 0.5% instead of the 0.7% MER because I invested all of my parents pension with them. I later decided to talk to my grandparents adviser because it looked like they were getting better returns and their advisor said MER doesn’t decrease with the amount invested just the advisory fee and that the 0.5% would be advisory fees and they would also be charging me the 0.7% MER that would come off before I even saw any deductions in my account. At this point I don’t know who is lying to me. Does anyone have any idea?

    • Barry Choi on January 18, 2022 at 6:10 AM

      Hi Michaela,

      There will always be an MER for the funds that you have in your portfolio. The advisor fee is separate from your MER. You need to check with your current financial institution to find out what the advisor fee is.

      For example, robo-advisors charge a advisor fee of around .5% + the MER of the ETFs they use, that’s usually about 1% TOTAL.

      If you’re using a human wealth advisor, the fee they charge is usually 1%-2% or a percentage of your total assets.

Leave a Comment

Get a FREE copy of Travel Hacking for Lazy People

Subscribe now to get your FREE eBook and learn how to travel in luxury for less