Explaining the pitfalls of MERs

Richard had recently seen a financial adviser who considered his assets and financial goals. He recommended a series of products that he said had a good chance of enabling Richard to meet his goals. Richard was particularly interested in New Zealand share funds.

Richard knew he needed to be careful about fees because of their effect on returns, so he raised the issue of fees with the adviser. But when the adviser explained the different types of fees, Richard became confused – there were so many different fees and they seemed to be based on so many different things. The adviser said that the products could be compared using the Management Expense Ratio (MER), putting everything on a common footing.

But Richard found there were some shortcomings with this. For a start, not all the products gave MERs. Those that did, ranged from 1.26% to 1.67%, yet did not include entry or exit fees. Nor did the MERs allow for the monitoring fee he would pay the adviser to keep an eye on his investments. He realised that while the MERs were better than nothing, they still didn’t tell him everything he needed to compare products accurately.

Richard decided to use Sorted’s fees checklist to get estimated dollar benefits after five, 10 and 20 years instead. That way, he knew he would be comparing ‘apples with apples’ and that the comparisons would be in dollar figures, which were easier to understand than different percentages.