Fees for simple stock trades
For a typical stock trade, fees are straightforward. Investors can expect to pay a commission based on the number of shares they purchase. So, for 100 shares of a bank stock for example, expect to pay about $30 to buy or sell the investment at an online brokerage.

The fees are higher at a full-service broker, but it depends on your arrangement with the firm. In some cases, a broker charges an all-inclusive fee to manage your money. That fee can vary between 0.75 percent and two percent, depending on the size of your portfolio. Theoretically, the more money in your account, the lower the fee, but that's something you have to negotiate.

Fees for investment funds
Figuring out fees is not as simple when it comes to investment funds, such as income trusts or mutual funds. That's because they are baskets of investments managed by professionals who must be compensated for their services, as must the person selling you the investment.

Such fees vary dramatically depending on the type of fund you purchase. Money market instruments tend to have low fees, while funds that focus on venture capital or exotic markets likely charge more.

For mutual funds, the primary fee is the Management Expense Ratio (MER). This is what it costs managers to run the fund each year. The MER is taken off the top before the return is calculated, so investors pay it indirectly.

The MER is paid whether the fund makes money or not. If a mutual fund claims a return of 8 percent but has an MER of 2.5 percent, then the fund actually earned 10.5 percent, but investors only participate in the eight-percent gain.

The MER contains two types of expenses. The first is the compensation paid to the investment manager; the second is the fund's operating expense. You can find out more about these in the fund firm's prospectus -- if you don't have the prospectus, you can find it online at the System for Electronic Document Analysis and Retrieval (SEDAR).

The manager's fee is usually a fixed percentage based on the fund's net asset value. The operating expenses are more variable. They include:

• Brokerage fees the fund manager pays to buy and sell stocks. So, active managers who trade a lot have higher expenses than passive managers, who follow an index and don't trade much.
• Fees paid for custody and transfer agents.
• Interest expenses.
• Taxes, such as GST.
• Bank charges.

According to mutual fund research firm Morningstar, the midpoint MER charged for all categories of funds is 2.78 percent. It ranges from a median high of 5.20 percent for labour-sponsored venture capital funds to a median low of 0.98 percent for Canadian money market funds.

Load 'em up
There can be additional charges that investors have to pay directly, usually in the form of sales commissions, unless they buy no-load funds, where there is no sales commission.

Investors who buy a load fund may be required to pay a one-time sales commission. They can choose to pay it at the front end or have it deferred over time, known as a back-end load. A front-end charge can be as much as five percent of the amount you invest.

There is also a deferred sales charge (DSC) option, in which the fee declines over a seven-year period, explains Dwayne Dreger, vice president of corporate affairs at Aim Trimark Investments in Toronto. For example, if you opt for the DSC but redeem after one year, a fund company might withhold a commission as high as six percent. But if you hold on to it for more than seven years, the fee declines to zero.

Investors can also face fees for switching from one fund to another within a fund family, though that's usually negotiable with the adviser. Investors may also have to pay fees for redeeming or switching funds within 90 days of purchasing them. That's a new fee many firms are adding to dissuade investors from engaging in short-term trading.

It's all about the MER
But it's really the MER that has the greatest impact on return over the long haul. Using the Investor Education Fund's fee-impact calculator, you can see how much fees really cost you.

For example, compare mutual funds with MERs of 1.7 percent and 2.5 percent. Assuming that a $10,000 investment grows at 8.41 percent a year, over a period of 10 years the value of the fund with the 2.5 percent MER is $17,582 and the total cost is $3,402.

The value of the fund with a 1.7 percent MER is $19,017 and the costs are more than 28 percent lower at $2,406.

Perry Quinton, manager of investor communications at the Investor Education Fund, says the calculator results are eye-opening. "I tell people they want to shop around to make sure they're getting value for the money. All the funds have different fees. Investing is not like getting your hair done. You have to take an interest in it because it's your life savings."

Jim Middlemiss is a freelance writer and lawyer based in Toronto.
He's a frequent contributor to the National Post, Investment Executive and Wall Street & Technology.