By Joe Demelo

How well are the fees charged within a retirement portfolio really understood? When you invest in a fund, you are buying the expertise of professional money managers and there is a fee for those services. Fee will vary depending on the level of expertise and management required of a particular fund. Generally speaking, the fees that members pay in a group savings plan are lower than what may be found through an individual plan obtained through the retail market, but fees matter, and understanding their structure is important.

Fees and other fund expenses are built into your investment and are commonly referred to as the investment management fee (IMF) in the group insurance retirement space, or management expense ratio (MER) in mutual funds. It’s important to understand that even a small difference in the fees can make a big difference to your return over time, especially in a flat or down market. Given the long-term impact that fees have on savings, understanding the fee is important not only the in return, but they may also impact how investments within a portfolio are chosen.

For our discussion we will stick to the fee components of group retirement products. Fees charged in this environment are broadly categorized as IMF’s, but may also include a Fund Operating Expense (FOE). Both must be considered when evaluating the “costs” associated with a particular fund or investment. The IMF is only one part of the fee structure and may contain fees to the investment manager, fees for administration and production of member support material such as statements, creating and maintaining websites and investment tools, and commission to the advisor. The IMF is often easily identifiable, but what may be overlooked is the Fund Operating Expense (FOE), which must be added to the IMF to evaluate the overall fee structure of the fund. A FOE will encompass other fees including those to manage the fund such as audit, legal fees, audit fees, custodian fees, transfer, marketing expenses and taxes.

As IMF and FOE fees may be represented separately, or viewed in different areas of the fund reports, making sure one understands all the fees charged is key to understanding what is actually being charged and how they impact an investment.