Most investors understand the notion of an investment management fee (IMF) associated with their investments in pension plans and retirement savings plans. The IMF is how the fund manager gets paid for managing the fund, and the fee will often include the investment firm’s operating expenses and administration costs too. But ask plan members, or even some plan sponsors what the MER is for their plan and you will often get a quizzical shrug in return.
The MER, or management expense ratio associated with your retirement savings plan, is an important consideration when selecting both the type of investment fund and the provider or administrator of your retirement savings program. While the IMF is a major component of the MER associated with your plan, additional fees and costs relating to recordkeeping, administrative support and commissions will increase the IMF you see published for a fund to something higher. The impact on the investment return of the fund is ultimately impacted as those additional expenses can turn the MER of your fund or plan into an anchor, dragging your returns down considerably.
So why is it important for you to know what the MER is of your plan? In simple terms, the higher the MER the lower your return. For group plans, the return you see published by the fund companies and service providers like insurance companies, is the gross return before fees. You might think you earned 12% on that Canadian Equity fund you so confidently selected when you enrolled onto your pension plan last year. In reality, with a 2.25% fee, you only earned 9.75% and that’s the number that would be reflected on your member statement.
Fees are an important consideration in the design of retirement savings plans. As a plan sponsor, you need to know what they are for your plan, and as a plan member you need to care enough to ask.
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