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Switch fees
When you move your investment from one fund to another, there is sometimes a switch fee of up to 2 per cent. For example, if you were transferring $l0,000 from a bond to an equity fund, the fee would be $200. However, if you are dealing with a mutual fund company with a family of funds (some fund companies have numerous funds), then you want to have the switch fee waived for any transfers within the fund company. This is discretionary, so if you don’t negotiate you won’t save the extra money.

Front-end load fee
This is the sales fee imposed at the time the mutual fund shares are purchased. It is called an acquisition fee or “front-end load” charge. Fees could range from one to eight per cent (although one to five per cent is the average range), and are negotiable. It depends on the amount invested, the nature of the investment and other variables. You want to discuss this openly with the person involved and do your comparative research to determine your investment-fee comfort zone. Naturally, the advisor wants to have some incentive and be motivated. However, every percentage point that you pay is effectively reducing your future return on investment, so negotiate assertively to pay the least possible. Ask what is the least commission they would charge to get, or keep your business.

Rear-end load fee

Another way sales commissions are paid is to charge a redemption fee or “rear-end loading” charge. This is paid at the time that the money is withdrawn from the fund. Redemption fees could be a fixed amount per transaction ($l5-$30 for example), or a percentage of either the initial investment or the current market value (net asset value) of your investment (frequently the latter). Depending on the fund company and individual fund, this percentage could range from 4.5 to l0 per cent in the first year, with a sliding scale diminishing to a zero-fee if the funds are kept in for a period ranging from five to 10 years. Also, many funds permit you to take out up to l0 per cent of the fund value each year without penalty. You should check on all the above matters prior to purchasing the fund. These fees and charges should be in the prospectus. The reality however, is that most people don’t read the prospectus thoroughly, let alone understand it. Some redemption fees are negotiable and some are not, because they are locked in by contract in the prospectus.

No-load fee
Funds that do not charge sales fees are called no-load funds. However, there could be a setup fee (perhaps $40 or more) which you can ask to have waived. In addition there are flat management fees. Generally, these are not non-negotiable. However, you should still do some comparison shopping to see where you can save money, as discussed in the next point.

Management fees
These fees can represent a significant cost to you for mutual funds and other investments. They can range from 0.5 to three per cent or more of your funds under administration, and are deducted from the assets of the fund before calculating the return to investors. The fees cover a variety of costs, including administration, brokerage commissions, investment advice, GST, and annual reports. An effective way to compare the management fees of various funds is to use the Management Expense Ratio (MER). This is an annual ratio of all fees (excluding sales commissions) and expenses, to the average net assets of the fund. A recent survey of Canadian equity funds, showed that the median MER was 2.20, meaning that there are as many funds with MERs higher than 2.2 as there are funds with lower MERs. Think of the MER as a percentage for management fee. An overview of newspaper or online comparison tables on mutual funds will show you how funds vary considerably in their MERs, even within a similar group of funds. You can frequently find these tables in the Globe and Mail and National Post newspapers on a regular basis, or online. By being aware of these comparative differences, you can make inquiries about why certain funds have a higher MER than others. Every percentage or portion of percentage of money you save on the MER enhances your return on investment, everything else being equal.

If you are paying for an institutional or private money manager to look after your investments, or have a local broker looking after your investments (a wrap account) then you would be paying a management fee. This is usually based on a flat rate percentage of the value of your assets being managed, and can range from 0.5 to three per cent or more. There may or may not be separate transaction charges, but all charges and fees are negotiable.

Remember the classic rule of thumb: you don’t get what you deserve in investment savings, you get what you negotiate.

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