Tuesday, March 20, 2007

Barry Barnitz' Financial Page blog: Hidden Fees in 401(k) Plans

Barry tells you what the issue is succinctly. Follow the link to read, or at least skim the underlying paper. 'Gird up your loins' if you aren't into reading technical financial discussions. But if you have a 401(k), and if you need it to work well for you, it's a major part of your future financial well-being. Start now, by at least looking over the paper.

I've advised people on subfund choices and allocation for their 401(k)s, and from this advisor's perspective, some are so much better, and some are so "less better". It's your retirement, and good advisors and smart clients have to find ways to make these things work optimally, as imperfect as they are, in short, make them work as well for you as they have for the financial services industry.

So, what do you do right now, with your plan as it is now, whether good or not so good? You learn. Learn about the disclosed and the undisclosed fees, at least well enough to know what a 12b-1 fee is, and to get the concept that these things are not neatly itemized for you in anything your plan provider sends you. Shock your 401(k) contact person by asking for the prospectus(es) for your fund choices. Get it. Gird up your loins again and read the thing. Go to the notes if you have to, to get the specifics, and get them correctly. You could politely email the people in your company who make decisions about the 401(k) provider. You might politely let them know if you think the fund choices are not great. Ask them, 'What is a fiduciary doing paying out 12b-1 fees, anyway?' Not all plan providers work that way. If there are no low-cost index funds, ask 'why the heck not?' If there is an index fund or two, but the expense ratio is higher than any index fund you ever saw, ask (in a nicer way) why they gave you such a crappy choice. You also do not need six or seven essentially identical (say, US large-cap growth) funds. You need one excellent fund, with low expenses, in major asset classes. You don't need "bear market" funds, internet funds, technology funds, long-duration or high-yield (junk) bond funds (uncompensated risk, per the academics,) or annuity choices (high fees and crappy performance--read the paper Barry links to.)

If you don't want to do such things, you might get a low-fee advisor who knows what the word "fiduciary" means, and cares enough to try to be a good one! Ask how the advisor has structured his business to be a good fiduciary. It's hard to stump financial services types, but that might do it! If you find one, he or she can help some with that 401(k).

Good investing!

Financial page: Congressional Testimony on Hidden Fees in 401(K) Plans

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