Well thats not the entire story. The MER is higher for sure, but there are no transactional costs for a mutual fund and that is a big difference. There is an option for an ETF that doesn't cost transaction fees now, but its the extreme minority.
There are a few other factors, but when you get really sector specific the other issue is liquidity. A lot of ETFs simply aren't very liquid as compared to a mutual fund.
Another reason is that the mutual funds are actively managed whereas the ETFs (by and large) are not. As the fund buys and sells holdings the fees to operate increase and voila you have a higher MER. The ETF doesn't operate like that though and as such management fees are much smaller.
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