What is an investment management fee (IMF)?

When you buy a retail mutual fund at the bank or through a financial advisor, it is important to understand the fees you will pay because fees do matter.  One of the fees to be aware of is the management fee and the management expense ratio (MER). The average MER for retail funds is about 2.5%.

Theoretically, group savings members should have lower fees that retail products because a group plan take into consideration the assets of all the members combined as opposed to each individual investor on their own.  This group buying power is one of the key benefits if a group savings plan.

Investment Management Fees (IMF)

In the world of the group savings plans, the terminology for the equivalent of the MER is an Investment Management Fee (IMF)

An IMF is an expense a member who participates in a fund pays for professional services required to manage and administer the fund. Services like portfolio management and record-keeping are covered by the IMF.

Typically the IMFs paid by members participating in group plans are lower than those available to individual investors. The lower the IMF, the better it is for participating members as more of their contributions and earnings grow for use during retirement (for use purchasing a retirement income).

What services are covered by an IMF?

This selection of services is funded by an IMF:

  • Professional fund management – for example, the selection of securities to hold in a fund and the rebalancing of those fund holdings.
  • Record-keeping – such as maintaining member files, processing contributions and transactions, issuing statements and supporting services like internet service sites for members.  The IMF may also include underlying fund operating expenses.

How does the IMF affect plan members’ unit values?

While IMFs are deducted from unit values every day, they are shown as an annual figure on statements and on the secure plan member site. An annual IMF of 1.75% would be stated as 175 basis points (bps).

If an IMF has not yet been deducted, the unit value shown will be a gross unit value and the rate of return for the fund will be a gross rate of return. Once an IMF has been deducted, these unit value and rate of return are referred to as net.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

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