Underpaying For Post-Retirement Financial Advice? Here’s Why You Should Be Concerned
There’s been pressure to lower 401(k) fees for some time now. When the Department of Labor (“DOL”) came out with its Mutual Fund Fee Disclosure Rule in 2012, however, it was careful to avoid making it sound like plan sponsors should always opt for the lowest fee.
Instead, the DOL insisted that fees be judged solely in relation to the value of the service, not merely against other fees. In its publication Meeting Your Fiduciary Responsibilities, the DOL states “While the law does not specify a permissible level of fees, it does require that fees charged to a plan be ‘reasonable.’”
Still, you can’t deny 401(k) fees are dropping. You can argue, though, if the value provided is also dropping. What’s important, if you’re retired, is what you are paying, not what the plan you’ve come from has paid.
In fact, even if you’ve kept your money in the company plan, chances are you’re paying more now that you are retired compared to what your old plan is paying. And that’s not a bad thing. Indeed, it may be in your best interest to pay more.
“Retirees should expect to pay for advice that is usually nuanced, changing and oftentimes responsive to fast breaking client requirements,” says Linda P. Erickson, Founder of Erickson Advisors in Greensboro, North Carolina. “This work is custom and, when done professionally and in the client’s best interest, requires time, expertise and a trusted relationship between the professional and the client.”
Why would a higher fee be “reasonable” for you as a retired person but not be “reasonable” if the same fee were charged to your 401(k) plan? Ann Martin, Director of Operations of CreditDonkey in Pasadena, California, says, “Retirees expect to pay more for advice than what they paid while they were accumulating their retirement assets because they no longer have their companies’ resources to help offset the cost.”
But it’s more than just a lack of economies of scale. It’s the very nature of what you need as a retiree that requires a higher level of service.
“Adviser fees are lower for 401(k) plans but they are focusing mostly on the plan itself and not necessarily on each individual and their financial plan for the future,” says Arvind Ven, CEO of Capital V Group in Cupertino, California. Ven isn’t surprised that retirees pay more because “post retirement has ‘wrinkles’ such as RMD, Social Security income optimization, generational wealth transfer, among others. Let us not forget Long Term Care planning, as people live longer nowadays and cost of care continues to increase annually.”