Understanding the costs of investment funds
Your annual investment account statement has a new look in 2017. It’ll show information about your account in a different way, to help you understand what it costs to buy, own and sell securities. You’ll see:
- Any costs for buying or selling an investment
- Any trailing commissions for holding an investment
- Charges related to operating your account
Sometimes there is a charge when you buy a security. For securities like ETFs, it’s called a transaction fee. For some mutual funds, it’s an Initial Sales Charge.
When you sell an ETF, you may also be charged a transaction fee. Some mutual funds will only charge a fee when you sell units or shares – that’s a Deferred Sales Charge. The DSC decreases over time while you own the fund.
After you buy a mutual fund, it typically pays an annual commission to your advisor’s firm for as long as you hold the fund. This is called a trailing commission – it’s how the fund company pays your advisor’s firm for the services and advice it delivers to you.
Mutual funds and ETFs must also pay management and operational expenses, including portfolio management. This cost is what makes up the fund’s management expense ratio, which comes out of the fund’s returns. These expenses have always been part of the cost of ownership but they don’t appear on your statement. A fund’s MER is identified in its Fund Facts.
Before your adviser buys or sells a security on your behalf, they must explain applicable transaction costs payable to them and whether their firm will receive a trailing commission.
This new reporting is meant to show you the cost of your investments and what you pay your advisor and their firm for their expertise, advice and service. The goal is to give you clear summary of what it takes to manage your investment account... the advice, services, transactions and operations. This is all the work that’s done on your behalf to help you achieve your financial goals.
Talk to your advisor to learn more about the costs of buying, owning and selling investment funds.