Fees, fees, fees

Since I first started getting the ball rolling with investing, I’ve been surprised by the seemingly endless number of fees that exist to make profit for the banks and investment houses. It was legitimately confusing, even though I took the time to read all the appropriate paperwork. If an effort is not made to minimize fees whenever possible, they can substantially diminish the returns of any investor with limited capital. I hope in a few years (or decades) I’ll be dealing with large enough sums of money that these fees will represent insignificant percentages, but for now they can make or break an investment decision. I’ve compiled a list of all the types of fees I have encountered thus far.

Account fees: This is the most basic type of fee, I suppose. My Basic RSP account has an annual fee of $25, as long as my balance is less than $25,000. Thus for my initial investment capital of $5000, I needed to accrue 0.5% of earnings before I was actually making profit.

Mutual fund "Loads": Loads are fees you pay when you purchase or sell a mutual fund. There are front-end loads, back-end or deferred loads, and probably others. No matter the style, they are unnecessary, and simply make money for the broker. Thus if you were using a financial advisor you may find they recommend load funds, and even claim that load funds have better performance, in order to line their pockets. Everything I have read says loads have nothing to do with performance, and I only purchase “No-Load” mutual funds. I believe I’ve seen loads as high as 6% of your capital up-front.

Mutual fund “Expense Ratios”: Regardless of whether there is a load, people need to make some money off of you when they manage your mutual fund. The expense ratio is the percentage of all gains that are skimmed off the top and used to pay the fund’s staff, and the bank that you purchased the fund through. The ratios can be anywhere from ~0.25% to ~4%. Always keep the expense ratio in mind when selecting funds, as these are slices taken directly out of your profits. When you look at the performance of a fund on http://www.morningstar.ca/, the figures and charts already take the expense ratios into account.

Mutual fund “Early Redemption fees”: Early redemption fees exist to discourage fund holders from jumping in and out of mutual funds. Mutual funds are meant to be long term investments, and if there is lots of frequent selling the fund manager is forced to sell holdings of the fund in order to get cash to pay out to the sellers. If you purchase a mutual fund and sell it within 90 days, there will most likely be an early redemption fee – from both the fund management company (i.e. Altamira) and the bank you invest through (i.e. TD).
Take for example the oil fund (RBC Energy) I sold after holding for only 1 month. The original investment was $1500, and final value was $1607. That’s a 7.1% profit, right? Well, RBC took 1% ($16.07) off the top as their early redemption fee, and then TD took their $45 flat-rate early redemption fee. My actual profit: 3.06%!.

Mutual fund fees based on the fund family: I discovered that these fees existed the hard way. Regardless of whether it’s a load or no-load fund, or how long you hold the fund for, my bank charges a $45 fee when I sell some funds, simply because of the company the mutual fund is from. I don’t know what the logical basis is for this fee, but it exemplifies how careful you have to be. I bought a couple Money Market Mutual Funds (a no-load, safe, mutual fund that you should be able to use as an alternative to a high interest saving account) only to discover that there were $45 redemption fees whenever I took cash out, because of the companies they were from!

Transfer or ‘Account Closing’ fees: If you get tired of the fees at your bank and decide it’s time to switch to a low-fee alternative company, you may find it’s not worth your while because of the transfer or closure fees. I could switch from TD to CIBC to save 2 or 3 dollars on every stock trade, but for each stock I move out of my TD account I must pay a $25 transfer fee. If I close any of my TD accounts entirely there is another fee ($100, I believe).

Stock brokerage fees: If you get into buying and selling stocks, you’ll see that the brokerage fees can take a mean bite out of your profits. At TD it costs $29, in the currency of the issue, every time you buy or sell. So if you had it in your mind to purchase $500 worth of a company (not an unreasonable ammount for a student or someone with limited capital), the $58 in brokerage fees to buy and sell the stock means it needs to appreciate 11.6% before you break even. I think you need to purchase at least $1000 of a company just to give yourself a fair chance to profit.
I am considering opening an account with Ameritrade Canada in order to take advantage of flat rate $10.99 brokerage fees. This company lets Canadian citizens purchase US stocks, but not Canadian stocks. There’s also a deal that gives around 30 free trades when you open the account (that seems like a lot of trades to me). I’m just not sure I like the idea of sending money away to a company with no physical branches or anything I can see. I feel safer doing my investing through my bank, with a branch at the end of my street I can walk into if I have any questions.


Hopefully I’ve made it clear how important it is to be careful with fees in all your investment choices. It is the necessary duty of the cautious investor to maximize his returns by minimizing fees, and thus making sure all his work doesn’t just make earnings for the bank. I’ve finally got mutual fund fees figured out, and I don’t make too many stock trades now, so I’m not feeling the sting too much. But I am hoping TD’s stock brokerage fees will come down to more competitive levels eventually. Maybe they should have a student discount.