Wilson Financial Team

In our last post, we introduced CRM3 and the concept of Total Cost Reporting, which you’ll start seeing on next year’s annual report.

Today, we’ll look at one of the biggest changes in this regulatory roll-out, the Fund Expense Ratio, as well as where it fits in the broader picture of investment products and services.

Before we begin, I want to stress that with the implementation of CRM3, there are no changes being made to your portfolio or to the services you’re receiving. This is simply an adjustment to the way information is shared in your performance reports.

What is an FER?

Investors who own mutual funds may be familiar with the traditional method of cost disclosure: the Management Expense Ratio (MER).

This metric is listed as a percentage of fund assets, representing the product’s management and operating costs—though even with CRM2 in effect, many investors would have to consult a fund’s prospectus to find this information, as it was often omitted from fund performance data.

The MER includes:

• Fund manager fee

• Trailer fee (if applicable)

• Operating expenses

• Taxes

The FER includes:

• MER

• Trade expense ratio (TER)

So the FER includes all the expenses the MER did, as well as the costs a fund incurs when its manager buys and sells securities. As you might imagine, these trade expenses (TERs) are higher for actively managed equity funds, where stocks are being bought and sold frequently.

While neither the MER nor the FER represent new fees, what they provide is a clearer picture of how much investors are paying to participate in mutual funds and other pooled products—and how much those fees are affecting overall investment growth.

How do these fees stack up?

As total cost reporting comes into effect with CRM3 in January 2027, some investors will be seeing for the first time what has been true for many years: the biggest culprits for high cost and low transparency are certain mutual funds.

To give you an example, below is an average mutual fund compared with the Wilson Financial Team fee structure:

*RBC Emerging Markets Equity Fund C$, 2023. https://www.rbcgam.com/en/ca/learn-plan/types-of-investments/what-is-a-trading-expense-ratio-ter/detail

With a stock-and-bond portfolio designed and managed by our team on a fee-based platform, what clients get is a lower overall expense ratio than a pooled fund, but with the personalization and flexibility of a custom portfolio.

While we do offer our clients pooled products, having an all-inclusive wealth management process enables us to pick and choose the investments that have the best potential for the client’s net growth—taking into account cost-efficiency, taxes, risk, liquidity, and other considerations.

Jim Wilson, B.Comm., CFP®
Senior Wealth Advisor
jim.wilson@iaprivatewealth.ca | Tel. (289) 644-1476