How to Compare Fees of Two ETFs

Comparing the fees of two ETFs can look straightforward: choose the one with the lower percentage. That is a useful starting point, but it is not a complete cost comparison. Two ETFs can have different ongoing expenses because they provide different market exposure, follow different indexes, use different portfolio-construction methods or create different trading costs for the investor.

A practical comparison starts by confirming that the two ETFs are meant to do the same job in a portfolio. Then look at both the expenses built into the fund and the costs you may pay directly when buying, holding or selling it. In Canada, the ETF Facts document is a valuable first stop because it summarizes key information about a fund, including risks, costs and expenses. CIRO notes that ETF Facts documents provide details about an ETF’s costs and risk level. Read CIRO’s overview of ETFs.

1. Make sure the two ETFs are actually comparable

The lower-cost ETF is not automatically the better fit. Before focusing on fees, compare what each fund is designed to hold and deliver:

• asset class: equities, bonds, cash, commodities or a balanced mix;
• geographic exposure: Canada, the United States, developed markets, emerging markets or global markets;
• the index tracked or the active investment strategy used;
• portfolio implementation, such as direct holdings, sampling, derivatives or another structure;
• whether the ETF uses currency hedging;
• how income is handled, including cash distributions or reinvestment within the fund; and
• how concentrated the fund is, such as a sector ETF compared with a broadly diversified ETF.

For example, a Canadian large-cap equity ETF and a globally diversified, currency-hedged ETF do not provide the same exposure. The second fund may cost more, but the difference alone does not prove that it is overpriced. A more useful question is: does the higher cost reflect a feature, exposure or approach that matters for the role this ETF is intended to play?

2. Separate the management fee from the MER

These labels are closely related, but they are not interchangeable.

CIRO defines the MER as the total of management fees and operating expenses expressed as a percentage of a fund’s value, and identifies it as the main cost of investing in a mutual fund or ETF. See CIRO’s investing glossary.

The MER is normally paid from the ETF’s assets rather than appearing as a separate debit in a brokerage account. In practical terms, it affects the fund’s net return. That is why an embedded cost should still be treated as a real cost when comparing two ETFs.

3. Include the TER to estimate fund-level expenses

The TER reflects the trading costs that arise when the ETF itself purchases or sells securities in its portfolio. In ETF Facts, trading expenses can be shown separately from the MER. The Ontario Securities Commission’s model ETF Facts disclosure illustrates that total ETF expenses combine the MER and TER. Review the OSC’s model ETF Facts disclosure.

For a quick comparison of two similarly mandated funds, a useful starting formula is:

Fund expense ratio ≈ MER + TER

The approximation sign matters. Adding the two figures helps compare disclosed fund expenses, but it does not capture every possible cost. Your account and the way you trade can add costs of their own. Also, published expense ratios generally reflect a prior reporting period, so they are not a guarantee that future expenses will be unchanged.

Beginning January 1, 2027, Canadian investors are expected to receive expanded information about investment-fund costs in annual fee and charge reports as part of Total Cost Reporting. CIRO explains that the Fund Expense Ratio is the sum of the MER and TER. The new reporting is intended to make embedded fund costs easier to see; it does not introduce new fund fees. Read CIRO’s Total Cost Reporting overview.

4. Add the costs you pay directly

Two investors can own the same ETF and still face different all-in costs because they use different brokerages or trade differently. When comparing two ETFs, review these direct costs as well.

Brokerage commissions

Your dealer may charge a commission when you buy or sell. Some platforms offer commission-free ETF trades for certain products or for all trades, but conditions, minimum purchase requirements and other account charges can differ. A fixed commission can have a larger effect on frequent small purchases than on a larger, less frequent transaction.

Bid-ask spread

The bid-ask spread is the difference between the highest price a buyer is offering and the lowest price a seller is accepting. It is an implicit trading cost: buying at the ask or selling at the bid can produce a less favourable price than the midpoint between them. CIRO specifically includes bid-ask spreads among the trading costs investors may incur. See CIRO’s discussion of fees and costs.

An ETF with a slightly lower MER may therefore not always be cheaper to use if it consistently trades with a wider spread. This can matter particularly for thinly traded ETFs, specialized funds and smaller trades. Market conditions change throughout the day, so a spread observed at one moment is not necessarily representative of every future trade.

Currency conversion and account charges

Buying a U.S.-dollar-listed ETF, or otherwise trading in another currency, can trigger foreign-exchange conversion costs. A brokerage may also charge account administration, inactivity, transfer or service fees. These charges are not part of the ETF’s MER, so they need to be checked in the brokerage’s own fee schedule.

5. A practical example without pretending to forecast returns

Assume you are considering two ETFs that provide very similar exposure to the same market.

On a $10,000 investment, the 0.03-percentage-point difference between 0.18% and 0.21% is roughly $3 over one year if the assets used in the calculation stayed near $10,000. In real life, the investment value changes, fund expenses accrue over time and returns are unknown. This calculation is only a way to put the fee gap into context; it is not a return forecast.

Next, examine the bid-ask spread when you are ready to trade. If ETF B is priced at $50 per unit and has a $0.06 spread, the approximate implicit cost of buying at the ask rather than at the midpoint is often viewed as half the spread, or $0.03 per unit; the same basic concept applies when selling. This is a simplification. Prices move continuously, and the execution price can depend on market liquidity, order size and the order type used.

In this illustration, ETF A looks less costly based on the disclosed expenses and the observed spread. But that conclusion could change if ETF B tracks the index that better matches the exposure you need, provides currency hedging you specifically want or uses a structure you understand and prefer. Fees should be compared alongside the product, not in isolation from it.

6. A six-step ETF fee comparison checklist

1. Define the ETF’s job. Compare funds only if they address the same exposure and diversification need.
2. Open both ETF Facts documents. Check the document date, investment objective, top holdings, risk rating and cost information.
3. Record the MER and TER. Add them to create a simple estimate of disclosed fund-level expenses.
4. Check your brokerage’s charges. Look for commissions, foreign-exchange conversion costs and account fees.
5. Review tradability. Look at the bid, ask and trading activity. A limit order can help you set the maximum price you are prepared to pay or the minimum price you are prepared to accept.
6. Assess the trade-offs. Ask what a higher or lower fee changes in terms of exposure, methodology, risk and product simplicity.

Finally, avoid evaluating an ETF solely by its past return, distribution yield or unit price. None of those figures replaces a review of the fund documents and the full cost picture. Fees reduce net returns whether markets rise or fall, but a low fee does not remove market risk or the risks associated with the ETF’s particular strategy and holdings.

Sources reviewed

These sources support verification and further reading.

1. Fees and Costs — Canadian Investment Regulatory Organization (CIRO)
2. Total Cost Reporting: What Investors Need to Know for 2027 — Canadian Investment Regulatory Organization (CIRO)
3. Types of Investments and Types of Accounts — Canadian Investment Regulatory Organization (CIRO)
4. Companion Policy 41-101CP — sample ETF Facts disclosure — Ontario Securities Commission