Pulling the curtain back on those 401(k) fees
Twice each week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to
Matt from Cincinnati: What is a normal fee for an investment advisor holding my former work 401(k)? I'm nearing that time when I won't be working at my current employer, and was probably going to transfer my 401(k) balance to a financial/investment advisor firm.
Answer: There’s a phrase credited to author and Hoosier native Kurt Vonnegut, “In this world, you get what you pay for.” There really isn’t a “normal fee,” because what you pay comes down to the level of service you receive from your financial advisor.
First, let’s slightly pull the curtain back. Fees for 401(k) usually fall into three main categories: the “plan administration fee,” which covers running the daily operations of managing the plan. This fee pays for personnel and conveniences like the plan website. There are “investment fees” covering expenses associated with investing your 401(k) money, like the “load” paid on mutual funds (“load” is industry speak for sales charges or commissions). Finally, there are “individual service fees,” the fees associated with taking a 401(k) loan, for example (which we rarely recommend you do). These fees add up over time.
If you’re happy with your current 401(k) plan and you have enough invested, there’s no reason for you to move the money. But, if you’re not happy with the available investment choices or services offered, moving this money may be in your best interest. Research how much you’re going to pay. Fee structures should be listed in an investment advisory firm’s “Form ADV.” Make sure to ask for it. Also, if you are considering moving your 401(k), you need to look at all the other costs which may include commissions, broker/dealer fees, and internal product fees.
The Simply Money Point: If you’re looking for more comprehensive management of your money, including a financial plan, that helps protect your money and make it grow, the fee for that personalized, professional advice and client service may be more, but it may be worth it. As they say, “In this world, you get what you pay for.”
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a Sycamore Township-based SEC registered investment advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.