At the supermarket, shoppers receive detailed receipts of their scanned and bagged items. After restaurant meals, wait staff hand diners itemized bills. But call out “Check, please!” to a financial services provider and the result might be a rundown of cryptic line items — 12b-1? Expense ratio? Or a passing reference to Part 2 of Form ADV.
Thanks to a new fee-disclosure rule from the Department of Labor, financial pros who offer retirement advice will have to disclose all costs associated with their services and products beginning in April.
But a disclosure that meets the letter of the law might not tell you exactly how much you’re paying in dollars and cents. To find out, you need to know what those fees are called, where they’re referenced, and how they’re calculated.
WHAT’S MISSING FROM YOUR RETIREMENT SAVINGS STATEMENT
“Amount due for fees” isn’t a line item most investors will find in their statements. Instead, fees are typically expressed as a percentage of the assets in an account and then skimmed off the top of annual returns or baked into an investment’s share price.
The lack of clarity might explain why 46 percent of full-time employed baby boomers polled by investment advisory firm Rebalance IRA in 2014 said they believed they paid no fees in their retirement accounts.
If only that were true. Based on average contribution rates, 401(k) fees and plan costs, a median-income couple, both of whom work, would pay nearly $155,000 in investment fees over 40 years, according to public policy organization Demos. That’s almost one-third of their total retirement savings returns.
Fees charged by mutual funds within 401(k) plans are on the decline, but all-in costs — including plan administrative fees — often depend on factors including plan size, total assets, service levels and fee structure that are largely outside of an individual consumer’s control.
START DIGGING FOR FEES HERE
If you know what you’re looking for, it’s a lot easier to find the fees buried in 401(k) plan summaries, obscured by jargon in mutual fund prospectuses, and banished to the dark corners of money management firms’ FAQs. Here’s where to point your headlamp:
BROKERAGE COSTS: The broker with the lowest commissions might not be the best deal. Investors who trade infrequently should look out for annual inactivity fees and maintenance costs (which can range from $50 to $200 combined). There are also transfer or liquidation fees ($50 to $75 for a full or partial transfer) and fees to access data feeds and trading tools, which can range from $5 to $50 or more per month for real-time quotes to hundreds of dollars for premium reports.