Fee-based isn't the same as all-in
Most investors with $2 million or more have a fee-based account: a percentage of assets, billed to the account. That fee is visible. The investments inside the account usually carry their own costs, which come out of returns rather than being billed.
Management expense ratio (MER)
The yearly cost of running a fund: the manager's fee, administration and taxes on those fees. It's deducted from the fund's value daily. You never see a charge.
Trading expense ratio (TER)
Commissions the fund pays when it buys and sells. Also deducted inside the fund.
Trailing commissions
Ongoing payments from a fund company to the dealer, funded from the MER. They've appeared on annual fee reports since CRM2. Fee-based accounts usually hold fund series without them, but it's worth checking.
Account and trading charges
Commissions, administration fees and other dealer charges. These already appear on your annual fee report.
A worked example: $8 million
An investor with $8 million pays a 1.00% advisory fee and holds mostly mutual funds with a typical 0.90% expense ratio.
| Advisory fee | 1.00% | $80,000 |
|---|---|---|
| Fund costs (MER + TER) | 0.90% | $72,000 |
| All-in cost | 1.90% | $152,000 |
A competitive all-in range for a portfolio this size is roughly 0.80% to 0.90%, or $64,000 to $72,000 a year. Against the top of that range, this investor pays about $80,000 a year more.
Because fees come out of the portfolio every year, the difference compounds. At a 5% yearly return before fees, the portfolio would be about $1.1 million smaller after 10 years and $3.1 million smaller after 20.
Illustration only. Assumes no contributions or withdrawals and ignores taxes. Lower cost isn't always better if the service, planning or results differ.
Run your own numbers
Slide to your portfolio size. Nothing you enter is stored.