Retirement Guys: Investment fees; what’s the total cost?
Written by Nolan Baker Mark Clair | | letters@toledofreepress.comIt is a shame our political leaders recently decided to remove the fee disclosure provision in the Senate Jobs bill. The goal of this disclosure would have been to provide the 50 million plus participants with 401(k)’s more disclosure on what the total cost of their investments are. We, as The Retirement Guys, find this is a major area that is often misunderstood from most people’s standpoint; investors should have more full disclosure on the cost of investments.
If we compared the retirement account with a house, both usually the biggest and second biggest assets people own, you will see differences in disclosure. Nolan recently refinanced his home with Liz Terwilliger of Home Mortgage Lending in Perrysburg. Before going forward, Liz provided me with a “Good Faith Estimate” of the total cost of the refinance. The form broke down line by line the cost of my investment in a refinance and where the costs were going along with a summary of the total cost. Even though I knew locking in a 15 year mortgage at a little over 4% interest was a dream come true, I still had the chance to review my cost so I could make a more informed decision. Yet, when it comes to the investment costs in many retirement accounts, most people don’t understand the total disclosed and undisclosed fees and expenses.
According to Robert Powell from CBS MarketWatch, lawmakers site additional cost of tracking and disclosing fees and the confusion it could cause as the reason for removing the disclosure. We feel with technology, disclosing cost could easily be done. Second, most investors are intelligent enough to look at investments and understand there are cost to investing; disclosing fees would not confuse the majority of investors.
Here is what we feel investors should get. Investors probably do not want a 200 page report on fees and expenses, a report that in depth would probably add additional expenses. Instead a simple one page summary would be a great start; just like what the mortgage industry and many other industries do. We try to provide as much disclosure as possible as to the fees and expenses of any investments we recommend to our clients. In general, many of our investment approaches are not the cheapest or the most expense approaches. Yet, by disclosing the cost, our potential clients can better evaluate the “got versus cost” benefits of working with our Firm. We do not see where full disclosure of fees and expenses would be difficult for most investment approaches.
Next, lawmakers say full disclosure would confuse investors. Again, they could have a valid point for a minority, but still miss the big picture for the majority. Most investors understand there is a cost to every investment, be it stocks, bonds, mutual funds, annuities, etc. They all have costs, no one in the financial business works for free. America is built on capitalism and most of us want to work with a business that is profitable. The majority of investors would not necessarily be confused by fee disclosure.
Some people get too caught up into fees. The cheapest investment option isn’t always the best. Yet, if all things are equal, cost does count. Evaluate investments using a benchmark, meaning net of fees and expenses, are the investments performing to your expectation? Second, look at the total cost and make sure you feel you are getting what you are paying for. Only the informed investor can make this decision. Most Americans are smart enough to evaluate “got versus cost.” It is simply an insult that lawmakers say fully disclosed fees would confuse people. It may only confuse people if it was in a 200 page report. We recommend starting with the bottom line. How much does this investment cost me and how is the investment doing in comparison to other choices? We don’t think that is asking too much.
Bottom line; investors should know and understand the total investment costs of their accounts. Do you know what all of your investment costs are? If not, take this week and find out. Call your financial professional or the investment company and ask them to provide a summary of the total costs. Do some research on the Internet. One website that does a pretty good job summarizing most 401(k) plans is www.brightscope.com. Or, get a second opinion by another financial professional. An independent analysis may be beneficial. You deserve to know, because what you don’t know, could be costing you.
Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC. The Retirement Guys are not an affiliate of NEXT Financial Group. Their office is located at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. Email The Retirement Guys at letters@ToledoFreePress.com or by phone at 419-842-0550. Neither the information presented nor any opinions expressed in this article constitute a solicitation for the purchase or sale of any security. Websites quoted are believed to be reliable, but we cannot guarantee their accuracy.
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