Financial Investment Services: Avoid Hidden Fees

To avoid hidden fees check with your financial investment services and limit theses fees in your investment accounts. Talk to your plan provider and read the 401 (k) prospectus. Also, review the U.S. Department of Labor’s article 'A Look at 401(k) Plans.' An employee has to scrutinize his investment plan to discover these fees. The plan may be worded in a manner that hides some fees.

Financial Investment Services Questions

Ask the plan provider what class of shares the plan holds and are other classes offered. Check for hidden fees in each class. Inquire if shareholder-servicing fees are taken out of investment funds. Learn which fees are part of the expense ratio of the fund. Ask if the 12b-1 fees are funded by the class of shares your 401(k) holds. If so, ask for lower 12b-1 fees through changing the share class. Ask if there is any charge for early termination, if so ask about an investment option. Ask if the service provider makes a yearly complete fee review. It should state the total they get from the 401(k) plan. Make a record of every fee the 401(k) pays.

Hidden Fees in 401(k) and Roth IRA

The cost of investing in a 401(k) or Roth IRA should not include sales commissions referred to as front-end load or deferred-sales charge. The annual expense ratio should not be above 1%. The annual expense ratio of 1% on a 401(k) can add up to a large amount of money over 10 to 20 years. That 1% on $200,000 cost $2000 in hidden fees per year. During a 30-year span, hidden fees of 1% can cut 401 (k) returns by 15%.

Employees Need to Know

Revenue sharing arrangements, rebates and fees are common amongst mutual funds, 401(k) administrators and employers, which reduce the employee’s returns. The U.S. Department of Labor explains in detail about investment fees, plan administration fees and individual service fees.

Fees Related to Investment Decisions

The employee’s investment choices for his 401(k) plan determines the fees beyond the administrative costs. These fees include: sales charges also referred to as loads or commissions, management fees also named account maintenance fees or investment advisory fees and other fees. The other fees are investment advice, toll free phone numbers, record keeping, furnishing statements, legal services and managing investment products.

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