The Securities and Exchange Commission issued a bulletin warning investors to be aware of just how much fees they are charged on investments, including those levied on 401(k)s and other retirement vehicles, could cost them.
Transparency in 401(k) fees has been a major topic for more than a year. As more light has been shed on them, some plan sponsors have been able to get them lowered, but overall disclosure rules have had little effect on participants’ knowledge of them.
The SEC noted that an investor starting out with $100,000 would pay $28,000 over 20 years on an assumed rate of return of 4 percent if they paid an annual fee of 1 percent. That $28,000 could have generated another $12,000 if it had been invested, leaving a $40,000 hole. Considering the low retirement savings rate among U.S. workers, a loss of that size would not be insignificant for many.
The two types of fees normally eating away at portfolios are those for transactions, paid each time a stock is bought or sold, and ongoing fees, such as an annual maintenance fee that is more applicable to retirement plans.
Participants in 401(k) plans often get hit two ways. First, they pay to cover the annual operating expense of the plan and they also are charged for the expenses associated with the mutual funds they hold.
Either way, the SEC advised, investors need to be aware of them and take action to reduce them as much as possible.