Don’t let hidden fees chip away at your retirement account
It seems like everything is pulling at household budgets these days: grocery prices are up, rents are increasing and each one of your streaming services has added an extra dollar to their monthly fee. The need for day-to-day cash is enough to make you reduce your retirement account contributions.
However, you would never do that, because making regular deposits to a retirement account is one of the most efficient ways to save money, collect interest and invest. Instead of cutting back, this is the moment to make sure every dollar in that account is doing the most that it can for you—and not for someone else.
Find a fiduciary
There are many different retirement plans and options, but in pretty much every scenario you can start to uncover fees with one single question to your plan’s administrator, broker or advisor, said Rich Cawthorne, President of HUB Retirement and Wealth Management, in New England: “How are you making money off of my account?”
Cawthorne is a fiduciary, a type of financial advisor legally obligated to make recommendations in your best interest, which is why he says he is always “banging the drum” to get everyday people to pay attention to the complex world of investing.
“A normal person trying to get three kids to three different schools in the morning, they don’t have the time to understand the difference between a broker and a fiduciary. Simply put a broker sells products and works for the company that they represent. A fiduciary works for their clients and has to put their clients’ interests ahead of their own,” said Cawthorne. So, to demonstrate his ethical obligations, Cawthorne broke down how he and others in his industry make money.
Find the fees
Every type of retirement plan is legally allowed to deduct operating fees from your account. When you compare that operating cost to the amount that you have in your account, you can find out your expense ratio. Cawthorne sees many people “begin at the end” — first locking in a retirement plan and then looking at the expense ratios, when instead, comparing expense ratios is one of the simplest ways to make sure you’re keeping as much of your investment as possible.
Operating fees should be low, but they depend on the type of funds in which your retirement account is invested: an index fund will have low fees, which can be as low as 0.02 percent, while other investments could have fees as high as 1.5 percent. “If you’re not paying attention to those bigger fees and adjusting your investments on a regular basis—which again, most normal people do not—it can add up to thousands, maybe hundreds of thousands, over the lifetime of the fund,” said Cawthorne.
For an individual plan, depending on who you are working with to manage your account, there can also be an advisor fee or custodial fee. This amount can vary and may not be disclosed up front if you are not working with a fiduciary. You will want to read the investment prospectus, which will disclose the fees that you are paying to be invested in this fund, ask your advisor to be transparent about the investment fees as well as their fee and ask them if they are acting in a fiduciary capacity with their recommendations.
When it comes to group plans, there can be additional fees. For most people, if they are saving money for retirement at all, they have a 401(k) account through an employer. In that type of group plan, there are larger administrative or recordkeeping fees and advisor or custodial fees, which are most often paid individually on top of the operating fee. “It’s not bad, but it’s rare to find an employer who picks up those fees on top of their matching contributions,” Cawthorne said. He encourages employees to ask their HR department “What are our fees on top of operating expenses?” There is a federal requirement to disclose those fees for a group product, and those can fully be found in the 404(a)5 and 408(b)(2) fee disclosures.
While you’re in the HR office, or considering a benefits offer from a new employer, ask about whether the group participates in an annuity. An annuity is a mutual fund within an insurance product. When it comes to the distribution phase, annuities have the same tax deferral benefit as a 401(k), but Cawthorne is leery of the high fees that accompany the accumulation phase—the phase where the insurance company is making their money off your account.
“I won’t say whether annuities are all ‘good’ or ‘bad,’ but generally speaking, you have to search high and low to justify substantial fees for returns you could be getting elsewhere,” he said.
Find a plan to settle into
When it comes to retirement plans, you should not have to spend money to make money. Studies have even shown a correlation between lower fees and higher fund performances. While your daily fancy coffee drink might temporarily become a weekly treat, a well-managed retirement account will never stop making money for you.
Need someone who will read the fine print and mind the store? Contact HUB Retirement and Wealth Management to learn how they provide support to manage individual and group retirement plans.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC (GRP), DBA Alpha Pension Group, a registered investment advisor. Insurance services offered through HUB International. Alpha Pension Group, a division of HUB New England, GRP, HUB Retirement and Wealth Management and HUB International are separate entities from and not affiliated with LPL Financial. Alpha Pension Group, HUB New England, GRP, HUB Retirement and Wealth Management, HUB International and LPL Financial are not affiliated with any other referenced entity.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Copy the Story Link
Comments are not available on this story.