The MER includes all the costs of managing a mutual fund including operating expenses and taxes. You don't pay the MER directly. It's paid by the fund itself. You can find a fund's MER in the most recent Management Report of Fund Performance (MRFP).
Management fees are not deducted on one specific date each year. Each day, a proportion of the total annual management fee is accrued and then deducted from the fund assets on periodic (e.g. monthly) basis.
Management fees are fees paid to professionals entrusted with managing investments on a client's behalf. Typical management fees are taken as a percentage of the total assets under management (AUM). Management fees can also be referred to as investment fees or advisory fees.
The management fee is a charge paid to the fund manager for their expertise in managing the investment portfolio, while the expense ratio encompasses the total annual operating costs of a fund – including the management fee.
Aim for a “good MER” of 0.25% to 0.75% by investing in ETFs and using a private investment management firm to manage your portfolio.
How Do Expense Ratios Work? The expense ratio is typically expressed as a percentage of a fund's average net assets and can include various operational costs and annual fees. For example, if you invest $10,000 in an ETF with an expense ratio of 0.04%, you'll pay $4 to the fund's manager this year.
Are investment management fees tax deductible? No, they aren't – at least not until 2025. The Tax Cuts and Jobs Act (TCJA) enacted major changes to what investors can and cannot claim on their tax returns. Among the most notable omissions are financial advisor fees.
Bottom Line. A 1% annual fee on a multi-million-dollar investment portfolio is roughly typical of the fees charged by many financial advisors. But that's not inherently a good or bad thing, but rather should hold weight in your decision about whether to use an advisor's services.
FMC is a fund management charge that an insurance company deducts as a percentage of the fund's value. The FMC is deducted before the computation of the daily NAV (Net Asset Value) of a fund. An insurance company can charge a maximum FMC of up to 1.35% p.a. on the fund's value for fund management.
Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. All stock and ETF sales are subject to a securities transaction fee.
Management Expense Ratio (MER) Calculation
The MER is the percentage of the annual fees plus the annual expenses, divided by the average net assets of the fund. Typically, MERs in Canada are below 3%.
Note that mutual fund management fees are different from management expense ratios (MERs), which are not tax deductible.
The management expense ratio is not a fee directly charged to investors. Rather, it is deducted from the fund's net asset value (NAV). Investors are charged other fees associated with the fund – fees that are not part of the MER, and that are charged when an investor buys or sells their fund shares.
How do MERs work? The MER is expressed as an annualized percentage of daily average net asset value during the period. For example if a fund's MER is 0.78%, this means the fund incurs annual costs of $78 for every $10,000 invested in a given year.
While 1.5% is on the higher end for financial advisor services, if that's what it takes to get the returns you want, then it's not overpaying, so to speak. Staying around 1% for your fee may be standard, but it certainly isn't the high end. You need to decide what you're willing to pay for what you're receiving.
It's worth noting that MER fees do not have to be paid separately by the investor; they're deducted annually from the fund and reflected in the fund's daily net asset value (NAV).
Exchange-traded funds (ETFs) have embedded fees like the ones attached to mutual funds, and those fees are not tax deductible directly on your tax return.
Advisor (Management) Fees
The industry typically refers to this as an investment management fee and averages between 1-2% of assets (i.e. A $100,000 investment could cost you between $1,000 - $2,000 annually).
While you can no longer deduct financial advisor fees, there are some other tax breaks you may be able to take advantage of as an investor. First, if you're investing in a 401(k) or similar plan at your workplace, you get the benefit of having those contributions automatically deducted from your taxable income.
Expense ratios can range from as low as 0.03% for some passively managed ETFs to over 1% for actively managed or specialized ETFs. Factoring in 0.5% to 0.75% for actively managed fees is considered to be around the average.
SPY is more expensive with a Total Expense Ratio (TER) of 0.0945%, versus 0.03% for VOO. SPY is up 28.31% year-to-date (YTD) with +$7.13B in YTD flows. VOO performs better with 28.36% YTD performance, and +$103.99B in YTD flows.
A management fee is charged by an investment manager for managing the fund's assets, while the MER, typically called the expense ratio, represents the total cost of managing and operating a fund and is given as a percentage of the fund's total assets.