But the MER doesn't include all costs as the Investment Funds Institute of Canada (IFIC, the mutual fund industry trade body in Canada) explains in this FAQ on fees. Some of those costs can substantial, further reducing returns to an investor.
Notable excluded costs are:
- brokerage commissions for trading; with turnover in funds up to 80% in a year, that can add up and reduce the performance of the fund (See The True Cost of Funds on Fundscope)
- sales charges, either front-load or deferred/back-end; actual performance for the investor is reduced to the extent that these charges apply - the front-load negative impact is obvious but it has been found that the deferred charges usually come into play since typical mutual fund investors apparently have short holding periods, averaging perhaps 3 years, while charges apply typically for six years.
- miscellaneous other charges, that may or may not be levied, such as RRSP admin fees, account opening fees, transfer out fees, short-term trading fees.
- trading impact costs aka the buy-sell spread, an opportunity cost, explained in The Hidden Costs of Mutual Funds by Milestone Investment Counsel
Nor are brokerage fees included in US published MERs, which are often called simply Expense Ratios. However, Total Expense Ratio does include include it - See this description of Total Expense Ratio in the Investopedia. In the UK TER also includes brokerage commissions and the information is usually published. Out with MER, bring on TER.