How Low-Quality, High-Cost Funds Drag Down Your Retirement Savings
posted by Fisher 401(k)
Many people are simply glad to have a retirement account. Who has time to dig into the fine print or crunch the numbers? Plan advisors know this and some take advantage by stuffing plans with mutual funds that carry higher fees or bring in big commissions.
But it’s you who ends up paying—not only now, but also when it’s time to retire.
Retirement savings rely on compounding growth. Each dollar you earn helps you earn more dollars over the years. Every dollar you take out of your account or pay in fees leaves a gap between your potential savings and what you’ve actually saved.
On top of that, funds that rely on revenue sharing for sales often perform poorly because they lack incentives for top performance. For those fund managers, it’s less important how well the mutual funds in your account do because plan advisors receive revenue from pushing the product.
How do they get away with it? When the markets are up, even poorly constructed mutual funds can make your portfolio look good, but when you take a longer view and account for averages and earnings gaps over a decade or more, you can see what you’re missing.
Twenty years of an average or below average fund can cost you hundreds of thousands of dollars at retirement. Is that a price you’re willing to pay?
You can have a retirement plan advisor who takes a rigorous approach to fund selection and keeps fees low. Fiduciary plan advisors who work for you—not for kickbacks—and put their fees toward growing your wealth. The right advisor won’t compromise your earning potential to make a quick buck. They’ll focus on quality over the long term because they understand how big a difference this approach makes for you when it’s time to retire.
Contact us today to obtain a complimentary investment and fee and analysis.
- Fisher Average savings calculation projects an annual return equal to the historic annualized return of each model portfolio that a 401(k) Solutions participant would be defaulted into starting at age 45 to 65 and using the Fisher Investments age-based QDIA solution, with fee and deferral rates, salary, and starting balance as specified on page 5 and 7. High Earner assumes $275K annual salary and $100K starting balance. Average earner assumes $50K annual salary and $25K starting balance. Industry Average savings calculation projects an annual return equal to the historic annualized return of the Morningstar category average return for the most applicable target date vintage over time, with fee and deferral rates, salary, and starting balance as specified.
- The calculations are based off the annualized return from October 2014 through December 2020 of the Fisher Investments models (and the closet equivalent Morningstar category) typically offered to plan participants: Fisher Investments 90% Equity, 10% Fixed Income (Allocation - 85%+ Equity); Fisher Investments 80% Equity, 20% Fixed Income (Allocation -70% to 85% Equity); Fisher Investments 70% Equity, 30% Fixed Income (Allocation - 50% to 70% Equity); Fisher Investments 60% Equity, 40% Fixed Income (Allocation - 50% to 70% Equity); Fisher Investments 50% Equity, 50% Fixed Income (Allocation - 30% to 50% Equity); Fisher Investments 40% Equity, 60% Fixed Income (Allocation - 30% to 50% Equity); Fisher Investments 30% Equity, 70% Fixed Income (Allocation - 15% to 30% Equity); Fisher Investments 100% Fixed Income (Intermediate Core Plus Bond). Past performance is no guarantee of future results. Returns shown above include cash and reflect the deduction of all fund-level fees and the reinvestment of dividends, interest, and other income. The model portfolio shown herein is available only to retirement plans receiving fiduciary and consulting services from Fisher Investments. Some sponsors pay fees for those services directly, but most will pay out of participant accounts, which reduces the net return to plan participants. The same is true for administrative or recordkeeping fees. Net returns shown above reflect the highest possible fee of 1.25% paid to Fisher Investments and cover services provided to the underlying funds as well as various other services provided to plans. Actual fees paid to Fisher Investments range from .25%-1.25% annually.
- Source: Fiduciary Benchmarks (Plan Profile Report based on $2mil plan with 50 participants), Morningstar and FI360. The Industry Average fund level fee (.48%) is based on the average total plan fees (1.49%) and proportion of the fee distributed to investment managers (32%) in the sample. The Fisher Average fee graph represents the fees Fisher Investments’ Plan clients paid on average for fund management as of 12/31/20. The calculation is based on the assets within each fund and the fund’s expense ratio as of the same date. Certain funds within the Fisher lineup are available only to retirement plans receiving fiduciary and consulting services from Fisher Investments. Fisher receives no revenue from those funds, but Fisher receives a fee for its services ranging from 0.25% to 1.25% annually.