What is a MER, and what is a trailer fee?
The Management Expense Ratio (MER) is the total annual fee a mutual fund charges, expressed as a percentage of assets. In Canada, the average equity mutual fund MER sits around 2%, among the highest in the developed world. About 1% of that is a trailer fee (also called a trailing commission), paid from the fund to the advisor or dealer who sold it to you, every year you hold the fund. CIRO (the new self-regulator) requires disclosure, but most clients still do not know they pay it.
A $200,000 portfolio in a 2.1% MER Canadian equity mutual fund costs you $4,200 a year. Roughly $2,000 of that is the trailer fee to your bank advisor, for as long as you hold the fund. The same portfolio in XEQT at 0.20% costs $400 a year. Over 25 years, the difference compounds to roughly $350,000 on a $200,000 base. That is a Toronto condo, paid as fees.
Believing your bank advisor is free because you never wrote a cheque. You did not write one because the fee is buried in the MER and pulled silently every business day. Ask for the exact trailer fee on every fund you own.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.