Comparing fee structures

Providers often use a Management Expense Ratio (MER) to produce a single figure of expenses so that you or your adviser can compare products quickly and easily. Members of the Investment Savings and Insurance Association (ISI) are obliged to give MERs for most of their products. Non-members (such as banks) do not have to. Sometimes a measure called the Ongoing Management Charge (OMC) is used for a similar purpose.

The MER is usually quoted as a percentage of the product’s assets. However, MERs are not always successful in providing a complete comparison between products. That’s because:

• Entry fees, servicing fees, switching fees or exit fees are not ‘regular charges’ so they are often excluded from MER calculations. Performance-based fees do not have to be included either.
• MERs are not intended to show the actual costs for an individual investor but for all investors in that product.
• There are no independent standards that providers must comply with when they calculate their own MERs.
• MERs are based on past years, so may be different to MERs in the future.

While MERs are not perfect, they are the only industry tool that attempts to compare the fee structures of different products. Therefore, you should always ask to see the MER if it is available.