How do ETF fees work?

• ETF management fees typically are lower than fees charged by traditional active fund managers
• Investors do not pay management fees directly to the ETF manager
• Fees and costs are generally accrued daily and deducted on a periodic (usually monthly) basis from the ETF’s assets
• Investors receive periodic statements setting out the fees and costs that have been deducted from their investment during that period

ETFs tend to be low cost

One of the factors driving the increasing popularity of ETFs in recent years is their generally lower cost structure in comparison to many traditional actively managed funds. Because most ETFs are passive investments, they tend not to charge the high active management fees charged by traditional managed funds.

In addition to the management fee charged on an ETF, other costs associated with an ETF include the costs of custodial services, auditing and unit registry fees.

Most of these costs are fixed and are expressed as an annual percentage. In some cases, an ETF may charge a ‘performance fee’, which is charged only if the performance of the ETF is better than a specified benchmark over a defined period.

ETF investors do not directly pay these fees and costs to the ETF manager or issuer. Instead, the fees and costs are reflected in the daily price of the ETF.

Management fees are not deducted on one specific date each year. Each day, a proportion of the total annual management fee is accrued and then deducted from the fund assets on periodic (e.g. monthly) basis.