A new study makes the case for “fiduciary-grade” investment advice, and even argues that such guidance could lower the total cost of 401(k) plans, resulting in higher returns for participants and additional retirement savings.
Employee Fiduciary, LLC, a provider of 401(k) recordkeeping and third-party administration (TPA) services for small and midsized plans, released its latest 401(k) advisor fee study, analyzing fees from 1,109 investment advisors who manage small, midsize, and larger plans and who partner with the firm for their services.
Employee Fiduciary, who says it fully supports the Department of Labor’s (DOL) new Retirement Security Rule, notes that advisors who follow the standards will “recommend investments with reasonable fees, leading to additional savings through reduced investment expenses.”
“When 401(k) fees are deducted from participant accounts, they reduce returns dollar-for-dollar, leading to less savings to compound until retirement,” said Eric Droblyen, president and CEO of Employee Fiduciary. “This cumulative effect of 401(k) fees can cost a worker hundreds of thousands of dollars in retirement. The Retirement Security Rule should blunt these losses by subjecting all retirement advice to ERISA’s rigorous fiduciary standards.”
The firm claims that when advisor fees are combined with Employee Fiduciary’s plan administration fees, total plan fees are lower than national averages. For example, plans between $0 to $500,000 in assets incur a total fee of 1.63%, compared to a 2020 national average from the 401(k) Averages Book that found 401(k) plans with $500,000 in assets paid an average of 1.71%.
Fees for larger plans tend to go down when incorporating fiduciary guidance, said Employee Fiduciary. Plans with assets between $500,000 to $1 million had an average fee of 0.95%, while plans between $1 million to $5 million had an average cost of 0.62%.
While Employee Fiduciary discloses that its findings do not include investment expense ratios, it adds that, “the investment advisers that work with Employee Fiduciary are legally obligated to recommend funds with reasonable fees as ERISA fiduciaries. Many choose low-cost investments like index funds and ETFs [exchange-traded funds], which can result in an average expense ratio as low as 0.10% of plan assets.”
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