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 percent who think they pay nothing, 19 percent think their fees are less than 0.5 percent. Four percent said they pay over 2 percent for annual fees.

In reality, the average 401(k) account holder pays about 1.5 percent in fees, and workers in small plans pay nearly 2.5 percent 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 one of our sister sites, 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.

“Do you really want to have people understand what you’re charging them or not? The way it works now, the answer is a resounding no,” he said. “The fact that the industry had to be forced into this by the DOL says a lot.”

He continued, “There’s no other industry in the world where people don’t know what they’re paying and get an invoice and a display of the charges and then choose to pay them, except ours. I think that’s coming under intensive scrutiny. If you want to hang on to clients you better start being transparent with fees and feel proud that those fees are justified by the service that you’re delivering.”

Tuchman added that the way investors get financial advice is changing as they turn away from financial advisors to online providers

“A lot of business practices give entrepreneurs like me enormous opportunities to disrupt industries like financial services. The venture industry has made their statement as well by funding companies like Wealthfront and Betterment and FutureAdvisor to the tune of hundreds of millions of dollars to go after these various practices with disruptive services.”

Rebalance IRA provides retirement planning services to mass affluent clients 45 and older. The firm has a $100,000 minimum investment. Clients pay a 0.5 percent advisory fee with a minimum investment of $100,000, Tuchman said.  

“We call it modern portfolio indexing. Those best practices where you manage a low-cost portfolio of index funds using modern portfolio theory and a disciplined rebalancing team, those best practices have never been made or sold to the everyday, mass-affluent investor, and they need it. Their returns are abominable.”

In spite of “abominable” returns, though, many clients seem to be happy enough just to be making money, not losing it, he said. The survey found respondents reported an average 5.2 percent return in 2013, compared with benchmarks that were up 9.5 percent. Still, 55 percent said they were satisfied with their returns.

“People don’t really understand how to accurately assess their returns. People tend to [think], ‘Well, if I’m making money I’m happy and if I’m not making money I’m not happy,’ and that doesn’t work for advisors,” Tuchman concluded. “They’re happy with us for things that are not in our control. I think we could all do a better job of trying to help people understand that if you’re trying to beat the market, that’s one job; if you’re trying to ride the market, that’s another job.”