Definition

MER, or Management Expense Ratio, is a fee expressed as a percentage that investors pay to cover the operating expenses of a mutual fund or ETF. It includes costs like management fees, legal fees, and administrative expenses.

If a mutual fund has an MER of 2%, for every $1,000 invested, $20 goes toward managing the fund each year.

Analogy

Think of MER as the service charge for a fancy gym membership. Just like you pay a monthly fee to access gym equipment, classes, and amenities, investors pay MER for fund management and operations.

But if the gym doesn’t help you stay fit, is the cost worth it? The same goes for funds — high fees don’t always mean better returns.

Little-Known Fact

Funds in Canada typically have some of the highest MERs in the world, with mutual funds averaging around 2%. By comparison, U.S. mutual funds often hover below 1%. This means Canadian investors might be paying double just to stay invested.

Source - Morningstar’s latest 2022 report.

Action Steps

1. Check the MER: Look for it in the prospectus or on the fund's webpage before investing.

2. Compare Alternatives: ETFs often have much lower MERs compared to mutual funds.

3. Ask If It's Worth It: Evaluate if the fund is outperforming enough to justify the higher cost.

4. Seek Professional Advice: A financial advisor can help you find low-MER funds tailored to your goals.