RRSPs: How Fees Wreak Havoc on Returns

Over coffee, conversations with friends sometimes turn to money, specifically, investing for the future. “I met with my advisor and contributed to my Registered Retirement Savings Plan (RRSP).” Got to love tax-deferred savings, I silently cheer. Inevitably, and reluctantly, I ask the next questions, “Have you asked your advisor what (i.e. mutual fund, ETF) you’re invested in?” Then, the mic drop, “What kinds of fees are you paying for investment?”

Talk about a buzz kill. This question is initially met with silence and feedback that ranges from “it’s included in the portfolio.” “Service fees?!” Or a straight-up, “I’m not sure.”

Fair enough. I’m here to tell you, as your Financial Educator Friend, best make it your business to find out. Depending on who your financial advisor is, and how they’re compensated, you may be paying significantly more in fees than you think.

There are a host of factors to consider; let’s consider mutual funds. Are your investments under active management or passive management? Were there front-end load fees, deferred sales charge (DSC) fees or did you opt for a no load fund? Understanding mutual fund fees is key to calculating your return on investment.

Management Expense Ratio Fees (MERs)

Another consideration: management expense ratio (MER): three little letters that can deliver a walloping punch. MERs are service fees which are embedded into mutual funds, index funds and exchange traded funds (ETFs). Much like insidious termites, these fees quietly chip away and erode your investment returns.

Eye-opening, right? Keep in mind, MERs are paid regardless of how your investment performs. I invite you, right now or perhaps with a beverage of choice in hand, to grab your latest investment statement and use this calculator to check out how sales fees are impacting your overall investment returns. Courage, my love.

The 2% Difference

Also, if you haven’t asked your advisor how they’re compensated (percentage of assets under management (AUM), or what the individual MERs are for the mutual funds or ETFs within your portfolio, it’s worth your time and money to broach this conversation.

It’s not enough to dutifully deposit money into your RRSP, especially with some US experts calling for stock market earnings to level and potentially decline over the next few years. It’s in your best interest to keep your investment earnings where they belong: in your portfolio. A little knowledge yields a lot of power; you owe it to yourself and your family to shore-up the foundation of your financial future.