Generally speaking, ETFs can offer lower management fees than other investment solutions. Let’s explore the expenses associated with investing in ETFs to help you decide if ETFs are right for your portfolio.
All exchange traded funds incur expenses related to the management of the fund. Perhaps the most common expression of the fees associated with an ETF is the Management Expense Ratio (MER).
Management Expense Ratio (MER):
The percentage of a fund’s average net assets paid out of the fund each year to cover the day-to-day and fixed costs of managing the fund. The figure is reported in the Fund’s annual management report of fund performance. MER includes all management fees and GST/HST paid by the fund for the period, including fees paid indirectly as a result of holding other ETFs.
The annual fee payable by the fund to the manager of the fund for acting as trustee and manager of the fund. This fee forms the largest portion of the MER. Typically, included in the Management Fee are the costs associated with paying the custodian and valuation agents, registrar and transfer agents, and any other service providers retained by the manager.
Other operating costs such as fees and expenses relating to the independent review committee, brokerage expenses and commissions, and taxes.
Other Costs of ETFs - Brokerage Commissions
Since ETFs trade like stocks on an exchange they may be subject to brokerage commissions. Commission rates vary and should always be considered when calculating the total cost of investing in an ETF.