High Investment Fees Destroy your Retirement

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When it comes to retirement planning, every dollar counts—especially when those dollars are quietly siphoned away by fees most investors don’t even realize they’re paying.

In this post, we’ll break down the layers of investment fees and how they can quietly eat into your nest egg over time. We’ll also share a real-life story of how one hidden fee derailed a retirement plan, and finish with a few action items to help you take control of your investments.

Understanding the Two Main Types of Fees

Let’s start by clarifying something: there are advisory fees and investment fees, and they are not the same thing.

• Advisory Fees (also called Advice Fees): These are what you pay your financial planner or advisor. Ideally, this covers more than just investment selection. At our firm, it includes goal-setting, retirement income planning, tax optimization, estate planning, and answering the big questions like “Will I run out of money?” and “Should I be doing anything differently?”

  
  

• Investment Fees: These are the costs associated with the investments themselves—fees you pay to own your investments, often without realizing it.

  
  

We believe in full transparency. Our advisory fee starts at 1% for households over $1 million and decreases as assets grow. We follow a fee-based model—your fees are tied to the assets we manage for you.

Visible Fees: What You Can See (If You Know Where to Look)

Most investors are familiar with the MER or Management Expense Ratio—a percentage that reflects the operating costs of a mutual fund, ETF, or segregated fund. But that’s just the beginning.

Here are two commonly overlooked—but still disclosed—fees:

1. MER (Management Expense Ratio)Includes management, legal, admin, and operational fees.

   
   

2. TER (Trading Expense Ratio)Covers the costs of buying/selling within the fund. It's rarely shown on your statements and often omitted in casual conversations with advisors. To find it, you'll need to dig into the fund’s Fund Facts.

   
   

There’s also the Short-Term Trading Fee, which may apply if you switch or sell a fund too quickly.

Hidden Fees: What You Don’t See

These are the costs that fly under the radar and rarely get explained—yet they have a real impact on your long-term return:

1. Implicit Trading Costs

These relate to the bid-ask spread and market impact—when large fund managers make trades that affect the price of a stock. These costs don’t show up on a statement, but you pay them just the same.

2. Cash Drag

Mutual funds often hold 2–5% of your money in cash, meaning it’s not working for you. On a $1 million investment, that could mean $20,000 to $50,000 just sitting idle.

3. Securities Lending

Some fund managers lend out the securities in your fund to earn extra income—but they don’t always pass those profits on to you. Over decades, this missed income stream adds up.

4. Tax Inefficiencies

Sometimes funds generate taxable capital gains without you selling anything. Why? Because the fund manager sold something within the fund. You still get the tax bill.

A Real-Life Example of Tax Shock

In December 2021, a major fund provider changed the mandate of several legacy portfolios. This triggered the sale of highly appreciated assets, resulting in massive capital gains.

One client had $500,000 in a fund priced at $13/unit. The fund distributed a $2.50/unit capital gain, resulting in a $100,000 taxable event—without the client selling a single investment.

For some retirees, this sudden gain caused them to lose benefits such as Saskatchewan’s seniors drug plan and triggered clawbacks on their Old Age Security (OAS). It was a harsh—and completely avoidable—lesson.

The Long-Term Cost of High Fees

Let’s put this into perspective with a simple example:

• Investment A: High-fee mutual fund (1.3% total MER + TER)

• Investment B: Low-fee evidence-based solution (0.3% total)

Assume both earn a hypothetical 7% return before fees on a $1 million portfolio.

After 20 years:

• Investment A grows to ~$3 million

• Investment B grows to ~$3.7 million

That’s a $700,000 difference, all due to fees.

Evidence Over Emotion

Research supports the argument for lower-cost investments:

• The SPIVA Report shows that over 10 years, 95% of Canadian equity mutual funds underperformed the S&P/TSX index.

  
  

• A study titled “Luck vs. Skill in the Cross-Section of Mutual Fund Returns” (Fama & French, 2010) found no evidence that fund managers who try to beat the market consistently add value.

  
  

The takeaway? You’re probably better off with a low-cost, broadly diversified, evidence-based investment approach.

Your Action Plan

Here are four action items you can take today:

1. Check Your Fund Fees

   Look up your investment holdings. Find the Fund Facts, identify the MER, and add the TER. If you want help, reach out to us and we’ll review them for you.

   
   

2. Read the Research

   Visit the SPIVA website or check out the study by Fama and French. It might change how you view active management forever.

   
   

3. Explore Our Investment Philosophy

   Visit our investment philosophy page to understand how we think about long-term, low-cost investing.

   
   

4. Prioritize What Really Matters

   As summer arrives, don’t forget to make time for family. We’ve got a few cottage rentals lined up and I’m looking forward to unplugging with my two boys and my wife. Your portfolio matters—but so does making memories.

   
   

Stay Connected

If this post helped you, consider subscribing to the Retiring Canada Podcast, following us on LinkedIn and Facebook, and signing up for our weekly newsletter.

And remember, When it comes to your retirement, don’t take chances.

Make a plan so you can retire with confidence.

SPIVA Canada 

Luck Vs Skill in the Cross-Section of Mutual Fund Returns  

All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.