Management expense ratios (MERs), which have dropped over the past decade, accounted for nearly $31 billion in revenue for the investment funds industry in 2023, based on a report from the Investment Funds Institute of Canada (IFIC).
“For investors, the MER is critical because it directly reduces their investment gains,” said the report, which was released Thursday.
Over the past decade (2013–2023), the average asset-weighted mutual fund MER in Canada (for long-term funds and all series) declined to 1.47% from 2.06%, the report said, citing data from research firm Investor Economics.
The drop was “primarily due to reductions in management fees and investors shifting to lower-cost funds,” the report said.
The average asset-weighted MER for long-term Canada-listed ETFs was 0.32% in 2023, it said, citing IFIC’s data.
The report also noted that, for fee-based mutual funds (i.e., those for which the cost of advice and distribution isn’t embedded in the MER), MERs decreased to 0.89% in 2023 from 1.05% in 2013.
“Fee-based MERs are most comparable to ETF MERs, since, in both cases, there are no embedded fees for advice and distribution,” the report said.
In total, MERs and dealer fees were $38.6 billion for mutual funds and $2.8 billion for ETFs in 2023, the report said. (The dealer fees for ETFs included both Canada-listed and U.S.-listed ETFs.)
Omitting dealer fees, revenues were $30.8 billion from funds’ MERs, the report said.
Trading fees, as measured by the trading expense ratio, accounted for 3% of revenues for mutual funds and 5% for ETFs in 2023, the report said — or $1 billion and $100 million, respectively.
The report, Funding the Future, prepared by the Conference Board of Canada, detailed the economic impact of the investment funds industry.
In 2023, the funds industry accounted for 2.1% of Canada’s GDP, the report said.
Using a model that included direct, indirect and induced tax revenues — an example of induced tax revenues was financial advisors spending some of their wages — the report said the funds industry contributed $21.7 billion in taxes in 2023.