RBC Asset Management announced on Tuesday that they plan on changing the way they calculate the MERs of their funds. As a refresher, an MER – the expense that we all love to hate – consists of a fund’s management fee (a fixed fee paid to the manager), operating expenses (variable expenses such as accounting and legal fees) and GST. Because a portion of the MER consists of variable expenses, it may change every year, even if the management fee doesn’t.

RBC will pay “certain operating expenses” of each of their funds out of their own pockets and instead charge a fixed administration fee to their funds. This will result in MERs that will be more predictable year in and year out, as RBC is essentially agreeing to pay the variable components of the MER in exchange for charging a fixed fee.

Typically, investors don’t know what they paid in fees until after a fund’s financial year has ended and its financial statements have been compiled and issued. The idea of a fixed fee changes all this.

Investors will benefit from greater transparency as a result of the change. And according to Brenda Vince, RBC Asset Management’s president, “More than 80% of the RBC funds will see lower management expense ratios (MERs) this year, as a direct result of this change.”

It's important to note that charging a fixed administration fee is no guarantee of a lower MER (although this is often the case). The key benefit is transparency. By knowing in advance the fees they'll pay, investors can more accurately evaluate and compare their investment options.

We applaud RBC’s announcement, as they’re a huge player in the business. Their proposed changes to the way they calculate MERs may raise a few eyebrows.

It should also be noted that neither RBC nor Steadyhand are pioneers here (did we forget to mention, this is the way we calculate our funds’ MERs as well. We call it One Simple Fee). There were a few other fund companies calculating MERs this way before we started doing it. Let’s hope others follow.