Of the 600,000 401(k) plans in the United States, many, if not most, have hidden fees that are ripping off the participants and the advisors who administer the plans, says David Loeper, author of several books on financial advice for consumers and advisors.
Advisors can help 401(k) participants cut these fees and increase their business as a result, Loeper advised in a recent Webinar. Among his books is Stop the Retirement Rip-off. Loeper is CEO of Wealthcare Capital Management of Richmond, Va., a financial services consulting firm.
"Advisors are used to defending the need for all fees," Loeper says, "but they can help themselves and plan participants by finding out what the fees are."
Loeper offered an example that he said was typical: A 401(k) participant whose plan had a $120,000 balance cost 1.3 % or $1,566 per year in fees. Only $384 of that went to the advisor. The rest went to the product vendor, whose administration cost was just $246, while its profit was $936.
"The advisor and participant were both getting ripped off," Loeper says. The same rip-offs are occurring in 403(b) and 457 plans, he says. "Nothing is being done because plan participants do not know they are getting ripped off so no one is complaining."
Advisors need to educate themselves about the excess fees and tell participants so that they lodge complaints.
"Little has been said about this so far but the awareness of the problem is growing. 60 Minutes did a piece on it recently and some news stories are beginning to appear," he says.
Advisors can find out their clients' or potential clients' retirement plan fees by filing a U.S. Department of Labor form requesting the information. "Advisors need to do their homework, but they can make the existing vendor disclose the fees because they are obligated to do so by the Department of Labor," Loeper says.