Industry attention is all over 401k fees — and fiduciary — but what about the general public?
Despite recent regulation and high-profile lawsuits, about 45 percent of U.S. households still believe the financial advice they receive is free, or they are unsure whether they pay for financial advice, according to Cerulli Associates.
“Consumers have long been unaware of the level of fees and the type they pay,” says Tom O’Shea, associate director with the Boston-based firm. “… but there are several forces driving consumers’ attentiveness to fees. Both the media and the emergence of digital advisors have shed light on the high cost of investing.”
It makes the somewhat obvious recommendation that 401(k) advisors reduce overall costs when constructing client portfolios in order to survive in a low-fee world.
“During the past several years, the magnitude of fees has become a challenge that directly affects the way in which financial advisors construct client portfolios,” O’Shea added. “New regulations cast a spotlight on high-priced investment vehicles. Advisors building portfolios should explore ways to reduce [them] by using institutionally priced mutual funds, low-cost model-delivered managed accounts, and ETFs.”
Cerulli suggests advisors explore alternative pricing models. The use of low-cost investment vehicles such as I-share mutual funds, ETFs, and model-delivered managed accounts can only generate so much savings, particularly because managed account sponsors have placed downward pressure on managers for years. At some point, advisors need to scrutinize their own fees.
It adds that manufacturers are looking to make target date funds more customizable without risking scale, one reason for their success, in order to better address the movement to low fees. .
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Slowly is correct. I work with smaller firms and there is very little awareness of excessive fees among the employees and also among most of the plan sponsors as well.