It’s great to see so many protesters in Washington D.C. protesting the high fees charged in the financial services industry!
Or, I suppose they may be there protesting something else...
And sure, protesting high fees in your 401(k) or with your advisor is probably pretty low on the list of lamentations under protest these days, but, it’s actually worth paying some serious attention to.
There is a great calculator on the Vanguard website where you can model how big of an impact fees can have on your return, particularly over long periods of time. You can access a link to that calculator and other great tools and calculators from 3rd party providers on our External Tools Page.
Here’s the bottom line. If you model a pretty typical managed account and you have average fund fees of say 1%, and then a 1% wrap fee on top of that, you’re looking at a 2% total fee. If you model that fee over 25 years at an average return of 6%, you can see the net accumulated lost returns is 43%! It’s actually pretty shocking.
That’s a lot of your pie that you’ve turned over to your investment manager. Now, if they were able to earn above average, market exceeding returns over time, and also provide other unique or value added services that are needed and reasonable to pay for, then you may assess that it was worth it.
However, many studies have shown that consistent, market-beating performance over time is very difficult to achieve and for most, many common financial planning and analysis services can be obtained through lower cost or fixed rate mechanisms.
OK, so low fees are important. Anything else? Yes, plenty, but it can be hard to keep all of the advice, tips, tricks and recommendations straight.
We’ve got a nice chart that summarizes seven of them, but at all of our workshops and seminars, we typically stress two key points:
· Ask if the person giving you advice is a fiduciary, and if not, why not.
· Ask how they are paid and how they keep fees low for core services.
The answers to those questions will either give you some pause or give you some comfort that your advisor is on your side.
There’s also an excellent and humorous tirade by John Oliver on 401(k) fees that’s worth watching. You can find the link to that video on our Video Series Page.
If you would like an assessment of your portfolio and the fees you are paying, we can provide a free consultation to give you the insight and transparency that can be hard to determine on your own. We can also provide no obligation alternatives.
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