The new year brings new regulations to 401(k) plans that are designed to provide more fee disclosure to participants in qualified retirement plans. The Department of Labor thinks investors deserve to know how much they’re paying in fees to have their life savings managed in company retirement plans. Seems fair, right?
As I was looking for industry reaction to these new rules titled 408(b)(2) and 404(a) I came across this gem from an executive of a major mutual fund provider: “Such fee disclosure may not change participant behavior as intended, however…Learning that a fund costs 45 basis points [.45%] is interesting math, but the most important way to change outcomes is to change how much you save. The savings rate is the most important element of a retirement plan, not the fees. he said.” Entire article here.
In other words, you worry about you and we’ll take care of the rest, including how much we automatically charge you for the service we provide you without you having a choice in the matter. What’s even more, employees don’t have the choice to opt out of an expensive retirement plan and choose another less costly one. It just doesn’t work that way. Is the participant’s savings rate an important factor in their success? Yes, without a doubt. Do fees matter when the very intent of the investment product is to deliver higher returns to its owner? I would say so. It’s not like we’re buying a pair of boots where paying an extra 10% for a furrier liner delivers better comfort.
With financial investments, cost has a direct impact on it’s very ability to perform.
It’s not the only factor, but shouldn’t you be able to make educated decisions with your money?
It will interesting to see how employers and employees respond to the new fee disclosures. In our firm we have been running side-by-side comparisons of various retirement plan options with employers to allow them to gauge the value of their plan. Most are shocked to learn of the true cost of their current plan…to the employees and the company.
The financial services industry is moving toward greater transparency, albeit kicking and screaming. Advisors have a choice in the coming transparency shift: to lead or to wait.
If you would like to have your retirement plan analyzed, feel free to contact our office at (419) 931-0704.
