Fees? What fees? In a sign 408(b)(2) might still have a way to go in making an impact with the general public, a new study finds 42 million of working Americans, or 58 percent, are ignorant of the fees they are paying, on their workplace retirement plans. It equates to $35 billion dollars, or $835 per person, that they are unknowingly charged.
The research, conducted by the National Association of Retirement Plan Participants (NARPP), finds that for those people who do know they are paying fees, only one-in-four (26 percent) could accurately answer how the fees are calculated.
“It is imperative that investors understand the fees they are paying and the risks associated with high fees,” NARPP Co-Founder Laurie Rowley said it a statement. “Investors are essentially acting as their own pension managers and the consequences of not knowing fee information can have a profound and irreversible impact on a lifetime of savings”.
The study also identifies a strong link between transparent fee information and the level of trust that participants have in their respective service providers.
“I think the message is clear for service providers — if you want to gain the trust and loyalty of your customers, you have to do a better job at providing clear and transparent information on fees,” Rowley adds. “Transparency increases trust, and trust is the key to engagement”.
Investors’ level of satisfaction with their respective service providers’ education programs remains unchanged, at just 38%. However, there is a wide range of scores on education satisfaction when you look at specific providers with a high score at 51 percent and a low of just 17 percent.
NARPP has identified the factors that are most important to investors when evaluating the efficacy of their service providers’ education program.
Investors highly value:
- Information that is always presented in their best interest
- Understanding the basics of investing
- Fee information is presented in a way that is easy to understand
- A high level of trust with their service provider
- Assistance meeting their long-term savings goals
“If we are going to improve outcomes and engagement with retirement savings, service providers need to radically change the way they are communicating with and educating their participants,” said Warren Cormier, Chief Behavioral Officer at NARPP.
New to the study in 2015, investors were asked how useful they would find a standardized fee label on all retirement funds, akin to a nutrition label on foods. The results show an overwhelming majority of investors, 81 percent, would find the label helpful. The same question was asked in NARPP’s Plan Sponsor Study and the results show a similar result, with nearly three out of four sponsors agreeing that the label would be helpful to their employees.
Currently the Top 10 performers in education are:
- Charles Schwab
- Bank of America/Merrill Lynch
- Wells Fargo
- Vanguard
- Fidelity, Empower (tied)
- Prudential
- John Hancock
- T. Rowe Price, TIAA-CREF (tied)
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.
