Almost half of boomers think they don’t pay any fees in their retirement account, according to a survey released Monday by Rebalance IRA, an investment firm based in Palo Alto, California.
Rebalance IRA commissioned AYTM.com to survey over 1,000 adults on the firm’s behalf and found many boomers have deep misconceptions about the fees they pay.
In addition to 46% who think they pay nothing, 19% think their fees are less than 0.5%. Four percent said they pay over 2% for annual fees.
In reality, the average 401(k) account holder pays about 1.5% in fees, and workers in small plans pay nearly 2.5% on average, Rebalance IRA says.
Mitch Tuchman, managing director for Rebalance IRA, put that down to two reasons. First, “I think they believe somehow that when the plan is offered as an employee benefit, the costs are covered by the employer,” he told ThinkAdvisor on Wednesday.
A bigger reason, though, is a legacy of firms not openly sharing fees, if not bad actors actually hiding them.
“Our industry is very, very good at hiding fees and likes to hide fees. I find that when we talk to clients doing business with us, they’ve been told by people in our industry that they don’t pay fees,” Tuchman said of clients who come to Rebalance IRA from another advisor. “They can be technically correct in saying that, but there are fees inside funds that can be kicked back to advisors and people don’t understand that. I think there’s a lot of confusion and our industry does a pretty good job of supporting that conclusion. I don’t think it’s a high-integrity business practice, but I think it’s behind a lot of this.”
Despite the Labor Department’s Rule 404(a)5, which requires participant-level fee disclosures, Tuchman thinks more could be done to clarify to participants what they’re paying in their retirement plan. He suggested HR departments could be more proactive with providing information for their employee participants.
One thing his firm has done is draft templates clients can use to email their employer or plan sponsor to get detailed disclosures of the fees paid from their account.
“I think there’s a lot that could be done, I just don’t think it’s made very obvious to people unless they ask,” Tuchman said.
Ultimately, though, the industry as a whole has to become more open about fees and expenses, he said.