A while ago, 401(k) fees were all the rage in the media. Big articles were written, big legislation was produced, and the big fees themselves were supposed to become a little more transparent. Apparently the companies providing the 401(k) plans were making BOATLOADS of money off of the fees, and (surprise!) they weren’t exactly being forthcoming with the amount of money they were taking. So the government got involved and mandated that there should be new fee schedules and customers should know exactly what they’re getting. And now my fellow Americans, let me ask you: is your 401(k) better off than it was last year? Don’t worry! I, like you, have no clearer understanding of the 401(k) fees than I did before the legislation. Another government job well done! In today’s WSJ the fee debacle continues. Now it’s not just the plans themselves that are under fire, but doubts are being cast upon your personal trusted advisor. (And you thought it was just his tie that had problems.) The Journal is reporting that there seems to be misrepresentation, deliberate and otherwise, as to the nature of advisors’ compensation. Here’s the breakdown: In the beginning, financial advisors used to make a lot of their money by recommending certain products for which they got a commission. This commission came from the product suppliers, thus setting up an obvious conflict of interest. In response, a new breed of advisors hit the market, and they were popularly known as “fee-only”. This meant that these advisors were compensated purely by their clients’ fees, and did not receive any inducement from outside sources. Theoretically this meant that they could give their clients the best advice possible. Now what happens if you’re a commissioned broker, but want to ride on the impartial coattails of the fee-only? Apparently, all it takes is to come up with a similar sounding moniker. In this case the designation chosen was “fee-based”. Now if I were to ask you how is your advisor compensated, would you know the whole answer? Let me preempt your answer by saying that I understand completely. The rate sheet is confusing, there are different fees for different services, and (truth be told) we never really read the fine print anyway. Add to the list that your advisor might be double dipping and pushing inappropriate assets on you, and you have the makings for another Alka Seltzer night. (And, no, I did not receive a commission for that plug.) Maybe it’s time that we took our place in the driver’s seat. Although it can be scary to personally take the reigns, sometimes learning how to handle the reigns is the only real way to gain peace of mind.
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