What are Canadians actually paying for investment management and financial advice? And what are they getting?

Fees matter and Canadians are starting to notice: Let’s start with a classic Questrade commercial outlining the impact of fees on investment returns: Compound Interest the 8th wonder of the world. The commercial is emotionally powerful, and compares an investor paying 2% fees over 30 years and ending up with ~400K (or ~40%) less at retirement.

But do Canadians really pay 2% fees? And if so what are they getting for those fees? This is a more complex topic than meets the eye, and I’ll start to chip away at it with this post.

Canadians on average pay very high investment fees and many are unaware of it: According to Investor Economics In 2023 Canadians paid an estimated $41 billion dollars in investment fees and expenses (across mutual funds and exchange traded funds (ETFs)), that’s about $1,000 per Canadian (many of whom don’t invest). Canadians held $1.9 trillion dollars in mutual funds and another ~400 billion in ETFs. The average all-in cost for an investor with $500,000 in a mutual fund was $10,227 per year or a shade over 2%. According to a FAIR Canada survey 77% of Canadian investors are concerned they are paying too high fees and 63% of Canadian Investors don’t understand the fees they pay. At least part of the issue is that investment fees and expenses are difficult to understand, and seldomly reported in a single aggregated figure to investors.

The good news is that management expense ratios (the biggest component of the costs) have declined significantly over the past 10 years, and further regulations go in effect in 2026 that will make the costs of investing and financial advice even more salient to investors, because only then can they assess whether or not it’s worth it.

There are 2 main categories of costs Canadians pay: (The Figures in brackets are relative sizes of cost buckets based on 2023 investor economics mutual fund data).

1) The costs of the financial product or investment implementation, these fees are paid to the institution and/or fund manager and can include:

• Management Expense Ratio (MER) of funds & ETFs which covers compensation and administration costs for the investment fund manager (~45% of average mutual fund cost)

• Other expenses including trading spreads, sales taxes, other operating expenses, and trading commissions and spreads ( ~15% of average mutual fund cost)

• The costs of embedded features such as insurance in segregated funds (Not relevant for mutual funds)

Product costs can vary from well less than 0.1% for a passively managed exchange traded fund (ETF), to 3%+ for actively managed segregated funds that include insurance-like features.

As famously put by Index investing pioneer John Bogle: “The grim irony of investing, then, is that we investors as a group not only don't get what we pay for, we get precisely what we don't pay for.”

2) The costs of advice or payments made to the financial/investment advisor who is serving the client

• This can include direct compensation in fee-based accounts. (Charged directly by advisors and not included in the costs of mutual funds)

• It often also includes indirect compensation where the costs of the advice are embedded in the product costs above such as trailing commissions in funds like A-series mutual funds (embedded in the management expense ratio). (~40% of average mutual fund cost).

The cost of advice can also vary from 0% (no advice), to upwards of 1.5%. Comparing the cost of advice is difficult as service levels vary significantly.

Ok so now we understand these 2 big buckets of costs lets better understand what are Canadians actually paying? For this analysis I used Morningstar’s 2025 Fund Fee Study and made some educated extrapolations.

I define the “Extra” cost as the cost over and above a low cost, self-directed exchange traded fund which can be purchased for ~0.15% or less.

1.1)           Investment Style: (~0.6-0.8% extra for active management)

1.2)           Proprietary higher cost products (~0.3-0.6%+ extra for captive products)

1.3)           Embedded Insurance-like features (~0.8-1.5%+ extra for features like principal guarantees)

2.1)           The cost of advice (0.7-1.3% extra for advice)

These costs can stack: The illustration below shows how 3 different investors with a similar portfolio of 60% global stocks & 40% bonds might pay very different fees.

Investor 1: Is a Do it yourself investor and has a low cost globally diversified ETF and receives no advice. They pay 0.15% per year, or $750 on a 500K portfolio

Investor 2: Holds very similar underling stocks and bonds through active mutual funds, and receives some advice, they pay ~2% per year or roughly 10K

Investor 3: Holds very similar underling stocks and bonds through segregated funds, they may receive advice and typically have some protections if their investments decline over the 10 years or more, they pay ~3% per year or roughly 15K.

Ok so all these costs can get expensive, let’s understand more what investors are paying for in each category.

1.1)           Investment Style

Active investment strategies attempt to beat their benchmark performance by achieving higher risk-adjusted returns than could have been done by investing in the market. These organizations have highly compensated employees who are responsible for picking stocks and bonds that they think will perform better than average. There is robust academic literature that suggests that while many active managers can beat the market before costs, they rarely do so after costs and it’s impossible to know which managers will do so on a consistent basis.

On an Asset Weighted basis, the typical cost to Canadians of an actively managed investment fund is ~0.9% (excluding the cost of advice). See Chart 1 Below.

Chart 1: Active management costs for all Canadian funds (excluding share classes where the cost of advice is embedded)

Source: Morningstar 2025 Fee study

Passive investing (or index-based investing) is the alternative, in this style the investment manager buys all of the securities in an index or market, and earning similar returns to the benchmark. This style results in significantly lower costs (no expensive research and stock pickers). On an Asset Weighted basis, the typical cost to Canadians of a passively managed investment fund is ~0.2% (excluding the cost of advice). See Chart 2 Below.

Chart 2: Passive investment management costs for all Canadian funds (excluding share classes where the cost of advice is embedded)

Source: Morningstar 2025 Fee study

Active investing costs most Canadian investors at least .7% in additional fund management expense ratio per year with limited value. These funds also tend to have higher other expenses such as trading spreads and taxes, despite this and over 80% of Canadian Investments remain in actively managed funds.

Passive investments are gaining traction in Canada, but so too are private investments or “alternatives” such as private credit and private equity which also involve active management and typically significantly higher fees (especially for retail investors).

1.2)  Proprietary, higher cost products sold to customers within an often captive distribution channel

This is the really challenging part of the asset management landscape in Canada (and I think the root cause of why so many Canadians are skeptical of financial institutions). An integral part of the profit model of large banks, insurance companies, and many asset managers is incentivizing or requiring their staff to recommend investment products that are also manufactured by that same organization, often at a higher cost to the investor.

This is often but not always combined with active management, however if investors do manage to buy a passive index portfolio from many of the large asset managers they will likely still pay significantly higher fees by using the institution’s product rather than a comparable independent passively managed product.

Please note we are not endorsing specific securities but consider this example: (this pattern persists across Canadian asset managers). VCN.TO is a Canadian Equity Index ETF with a MER of 0.06%, whereas the Scotiabank Canadian Equity Index Fund (BNS581.CF) has very comparable equity exposure but has a MER of 0.55%. That’s 0.5% of additional product/admin costs.

1.3)           Embedded “insurance-like” features such as principal guarantees and death benefits

This deserves a post on its own, but as a general rule products sold by insurance companies that combine investment and insurance features come at a significantly higher cost than purchasing insurance and investments separately. For example Segregated Funds sold by insurance companies include insurance-like features such as guaranteeing 75% or 100% of the principle over a period of often 10 years or in the event of death of the policy holder. These funds often have MERs in excess of 3% and additional sales charges and commissions to cover the cost of advice. Segregated funds often also include the costs of active management, and proprietary products but the insurance features add an additional ~0.7-1.2% in further costs.

2.1)           The cost of advice

Interestingly the cost of advice in Canada is reasonably concentrated around 1% of assets under management despite the level of service varying significantly, see chart 3 below.

Chart 3: Passive investment management costs for all Canadian funds (excluding share classes where the cost of advice is embedded)

Source: Morningstar 2025 Fee study

There is significant variability in the service levels that comes from this advice, ranging from an annual check-in to comprehensive financial planning. Paying for advice you aren’t receiving is clearly a bad deal for investors, however high-quality personalized advice can for many investors exceed the value of the cost of that advice (we’ll break this down in a future post). There’s also the complicating factor that if an investor finds an advisor they trust that is delivering valuable advice to them, they may be stuck with certain product costs because of the channel that advisor works with.

Ok great what does this all mean, well first the average Canadian investor really is paying ~2% fees for some combination of product costs and advice. As an newer investor or with a small balance that might be totally fine, but on a $500K portfolio $10K/year is a substantial claim on future retirement income and you deserve to understand what’s going into that fee (and what you are getting in return).

The good news is that costs are coming down both within categories and by a shift from active to passive funds. Furthermore, new legislation beginning in 2026 (Total Cost Reporting), will make the investment product costs and the costs of advice significantly more salient for investors and cover a broader range of products. Most investors will get their first glimpse of that data in early 2027 when they receive their annual investment statements followed by some tough conversations with advisors.

If you made it to the end thanks and happy holidays! This post was much deeper than planned, if you enjoyed this type of content please subscribe for more. As always happy to answer any questions at info@gybefinancial.ca.