Management Fee versus MER – NOT THE SAME THING!

I thought I would take the opportunity to make today’s post about the difference between MER’s (Management Expense Ratios) and Management Fees.

Too often people will use the two terms interchangeably – and this can be misleading. Generally business journalists and investor advocates will warn you to avoid MERs that are too high – and might site an MER of 2.00% as being the most you would want to pay for a certain type of mutual fund (this is just an example). However, some people will look at the Simplified Prospectus of a fund and note that a fund they might be considering has a Management Fee of 1.50%. They might think to themselves that this is acceptable based on what they have read about fees.

But note that the MER is made of up a number of different types of expenses, only ONE of which is the Management Fee. A fund with a Management Fee of 1.50% may have a MER of higher than 2.00%.

Specifically an MER (Management Expense Ratio) is made up of:

Management fees paid to the mutual fund manager (this is what can be mistaken for the Management Expense Ratio)


Fund administration expenses
Advisor sales commissions and ongoing trailer fees
Legal fees
Audit fees
Custodian fees
Transfer agent fees
Marketing and advertising expenses
Goods and services tax (GST)

Let me take an example from an actual Fund Prospectus. I will omit the name of the fund or the fund company, but the numbers are real. I will compare the “Management Fee” with the actual “Fund Expenses Indirectly Borne by Investor”. “Fund Expenses Indirectly Borne by Investors” gives you a better approximation of the actual dollar amount of fees you would pay on every $1,000 invested if the fund earned a 5% return in that year, and the MER was the same as the previous year. This information can be found in all Mutual Fund Prospectuses.

Mutual Fund “X”

Management Fee listed: 1.85%

Fund Expenses Indirectly Borne by Investors: $22.35 per $1,000 (=2.235% MER)

So in this case, some might be under the impression that this fund has an MER of 1.85%, when in actuality it is 2.24% (rounded). Buyer beware!

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 14 comments
  • Richard Abraham

    Thanks for the article. I’ve just looked up one of my Mutual Funds (Fidelity Global-B). The MER is listed as 2.27% and the management fee is listed as 2.44%. How can the Management Fee by higher that the MER if it is include in the MER. I hope I’m not paying both! Thanks.

  • Preet

    Hi Richard, according to the latest MRFP, the management fee for Class B units is 1.85% and Class A is 2.00%. MER for Class B is 2.25% and 2.60% respectively. Perhaps this clears it up.

    If not, let me know exactly where you got your numbers and I’ll do some more digging.

    Cheers and thanks,


  • Antony Pranata

    Hi Preet, I’m still confused. I looked at CIBC US Index fund on It says that MER is 1.08% and management fee is 1.20%. This is another example that management fee is higher than MER.

  • Preet

    @Antony – if you look up the MRFP from CIBC you will see that the actual MER was 1.61% for 2008. They then absorbed part of these costs to bring down the MER to 1.00% for 2008. So your example is anomalous because there were fee absorptions after the fact.

  • Brian Baker

    Hi Preet,
    Thanks for that great clarification. Is it fair to believe that MER excesses are more likely to be absorbed when a fund is not performing as well as it could?

    • Preet

      Hi Brian – actually no, the main reason for MER absorption is during the early stages of a fund when it has few assets. This is to prevent the fund from showing a high looking MER.

      Some expenses are fixed, other are variable. So when a fund has $1 million in assets, but costs $500,000 to run, the MER would show as 50%. But when the fund has $100 million in assets, but costs were $1 million, then the MER would be 1%. The management company will eat some of the costs early on to make the MER look closer to where they would like it to be when there are more assets in it.

  • Jim Fishwick

    I am confused as to how the return on a Mutual fund is shown. In your example of a fund showing a 5% return for a year, is this after the MER has been factored in? Is your investment now worth $1050? Or in the case of a MER of 2.5%, would the investment now be worth $1025?

    Thanks, Jim

    • Preet

      @Jim Fishwick According to a simplified prospectus (which seem to have identical wording between fund companies on this section), the table showing the Feed Indirectly Borne by the Investor assumes a 5% straight line growth after factoring in the MER. Since MERs are actually deducted more than just once a year, the final numbers will be off slightly since you are taking away money from the funds regularly (which impedes growth slightly versus just charging the MER at the end of the year).

  • Brian Baker

    I noticed today on, a CIBC Money Market fund (Class A units) with an MER of .36%, but a management fee of 1%. The MRFP states on P. 4, that the 2010 MER was .27% and the MER before waivers or absorptions was .38%. How can the MER before absorptions still be less than 1%? [The fund has been around since 1988]

    • Preet

      @Brian Baker Hi Brian, I haven’t looked at that fund specifically, but in 2010 many money market funds slashed their fees mid-year due to the low interest rate environment as many were yielding 0% (or less) after their fees. Since it was a tough sell to get advisors to put people into a money market fund with a guaranteed return of 0% or less, many fundco’s did this.

      • Brian Baker

        @Preet Thx, Preet. Makes a lot of sense under the circumstances. i guess you don’t always find out those details by glancing at Ann Stats and MFRPs.

  • greenepat23

    What do you think of the RBB Canadian Equity Income Fund? I am 56 years old and hoping to retire @ 65; earlier would be better. Currently, most of my money is invested in Low yielding GICs mostly under the GIC window

  • Blackfly

    Is there a sight that compares different Financial Institues MER fees I’m interested in seeing MER comparisons for Investors Group, RBC, CIBC, BMO and maybe ING and also ratings on their basic funds.

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