If you’re not sure, you’re not alone. It’s not like you’re handed a menu of charges when it’s time to place your order. Even when you know where to look, investment costs can be surprisingly hard to understand.

Let’s start by breaking down two of the major sources of investment costs: fund management fees and custodian/brokerage (trading) costs. Today, we’ll focus on fund management fees. Stay tuned—we’ll tackle trading costs in a follow-up post.

Understanding Fund Management Fees

One reason we often recommend a mix of index or index-like funds is their ability to efficiently capture global market returns—without requiring you to personally manage thousands of individual stocks and bonds.

That’s where fund managers come in. When you invest in a fund, you’re essentially hiring a professional to do the heavy lifting for you. Naturally, they’re paid for this service. But how much is fair?

What’s a Fair Fee?

To understand what you’re paying, start by looking at the expense ratio (or in Canada, the management expense ratio or MER). This figure represents the annual percentage of your investment that goes toward operating the fund. You can usually find it in the fund’s prospectus or by searching the fund’s name or ticker symbol online.

As of 2025, many broad-market index funds and ETFs have expense ratios as low as 0.02% (2 basis points) or less. On the other hand, if a fund has a higher expense ratio—around 1% or more—it may be helpful to consider whether the potential benefits align with the added cost.

Also, keep an eye out for additional fees like:

• Front-end loads – a one-time fee when you buy the fund
• Back-end loads – a fee when you sell the fund
• Contingent Deferred Sales Charges (CDSCs) or other redemption fees

These charges aren’t included in the expense ratio but are still real costs—and they can quietly chip away at your investment returns.

Hidden Costs and the Problem of Complexity

Here’s the tricky part: fund fees are often buried in fine print or wrapped into the fund’s performance. You won’t see a line item come out of your account each month, but they’re there—and they add up.

A study called Obfuscation in Mutual Funds from the University of Washington, MIT, and The Wharton School looked at two S&P 500 index funds with nearly identical gross returns in 2019—31.46% and 31.47%. But after fees? One charged just 0.02%, while the other had all-in fees as high as 5.08%. That’s a huge difference in how much of your return actually lands in your pocket.

The researchers also found something else: funds with higher fund management fees often made those fees harder to find. The lower-cost funds were more transparent, while the higher-cost ones used complicated disclosures that made the true cost tough to spot.

Why We Prefer Simple and Transparent

When you’re comparing investment options, simple and low-cost is often the better route. There are plenty of funds that clearly disclose their fees and avoid loads or unnecessary add-ons. Those are the ones we tend to favor.

That said, low cost isn’t the only factor to consider. Some funds cost more because they’re operating in harder-to-access markets. For example, emerging market funds often have higher fees than U.S. market funds, simply because managing them is more complex.

So the right approach is to:

1. Identify funds that align with your investment goals
2. Compare their expense ratios (apples to apples)
3. Eliminate funds that charge loads or hide fund management fees in dense disclosures
4. Choose from the most cost-effective options that meet your needs

Final Takeaway

Fund fees might be easy to overlook, but they’re one of the most important factors in your long-term returns. The more you pay in fees, the more your future self misses out on.

And remember: fund management costs are just one part of the picture. If you’re unsure what you’re really paying—or whether your investments are working as hard as they should—reach out to Navalign Wealth Partners. We’re here to help you take a closer look.