Investment funds: beyond the fees, understanding their true value
In popular discourse, investment funds—whether mutual funds or exchange-traded funds (ETFs)—often carry an unflattering reputation: “They’re just hidden fees.” This perception sometimes stems from poorly explained experiences or advice that wasn’t properly aligned with the client’s interests. Yet while there may be some truth to this claim in extreme cases, it oversimplifies a complex subject.
Like any financial vehicle, an investment fund has costs—but it also provides significant benefits: diversification, professional management, accessibility, and long-term strategy. The real question, therefore, isn’t “Are there fees?” but “What value am I getting in return for those fees?”
1. Understanding the types of fees in investment funds
Yes, investment funds do have fees. But these are neither secret nor hidden—they’re disclosed in all regulatory documents available to investors.
The main fee is the Management Expense Ratio (MER), which covers:
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the professional management of the portfolio,
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administrative costs (recordkeeping, auditing, compliance),
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investor services (statements, customer support),
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and sometimes the advisor’s compensation.
This ratio is expressed as an annual percentage. For example, an MER of 1.8% means the fund charges $18 per year for every $1,000 invested. This amount is already built into the fund’s net return—so there are no surprises or extra bills.
Since 2016, under the Canadian CRM2 reform (Client Relationship Model – Phase 2), institutions are required to clearly disclose all fees in annual statements, including commissions and management fees. Referring to them as “hidden fees” is therefore inaccurate today.
2. Compare what’s comparable
Many people compare a mutual fund with a 2% MER to an exchange-traded fund (ETF) with 0.25% fees and conclude that the former is a rip-off.
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the ETF offers no advisory support,
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the investor is left on their own to build, rebalance, and adjust their portfolio,
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they receive no personalized service.
A mutual fund distributed through a financial advisor generally includes a full range of services: financial planning, ongoing follow-up, tax guidance, and emotional support during market volatility. These services have real monetary value.
In fact, according to the Institut de planification financière (IQPF), Canadians who work with a financial advisor accumulate up to 3.9 times more assets over the long term than those who invest on their own (IQPF, The Impact of Financial Advice, 2017).
Some investors criticize mutual funds for not always outperforming benchmark indices. That’s true—active management isn’t always a winner, and performance transparency is essential.
However, some managers do succeed in generating alpha, meaning returns above the index, particularly in:
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less efficient markets (corporate bonds, international equities),
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periods of market volatility,
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specialized strategies (dividends, income, tax-efficient management).
A good advisor or firm doesn’t recommend a fund at random—they select products aligned with your profile, goals, and time horizon, while carefully evaluating their after-fee performance.
Behavioral studies show that unadvised investors often achieve poorer results—not because of fees, but because of poor decisions, such as:
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impulsive buying during euphoric market periods,
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panic selling during market downturns,
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lack of portfolio rebalancing,
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costly tax mistakes (e.g., selling in a taxable account in the short term).
Investment fund fees are neither hidden nor inherently excessive. They must be evaluated in relation to the quality of service, management, planning, and support provided. The question isn’t just what you pay—but what you get in return.
A well-chosen fund, thoughtfully integrated into a personalized strategy, is well worth its cost. The real mistake is believing that investing alone—without errors, without emotion, and without a plan—is free.
Mutual funds have higher fees than ETFs, but they often include guidance, active management, and personalized planning. ETFs, with their low MERs, are best suited for self-directed investors. The key is not just the cost, but the value of the service you receive in return.
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Vanguard, Putting a Value on Your Value: Advisor’s Alpha, 2020
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Autorité des marchés financiers (AMF), Understanding Investment Fees, 2023.
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Government of Canada, CRM2 Reform – Fee Transparency, 2016.
