What our company's 401k Advisor said about 1.5% Fees

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StevenNJ1
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What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Tue May 06, 2014 3:12 pm

EDIT
Thanks to all that gave such great feedback. I now have about 15 slides to share in our upcoming meeting with CFO, HR and 401k Advisor.

In that presentation you may see me quoting many of you.

You can view it here
https://www.dropbox.com/s/kh60bt98muy2w ... rt%29.pptx [link fixed by admin LadyGeek. See this post]

Would love to hear the feedback.

P.S. This presentation is not meant for large room and large groups.
I wish I had more comparison charts but it's difficult for me to find Funds that are very similar and fair for comparison to American Funds.


Is this B.S.?

Just spoke to our American Funds advisor about my plan.

Compared our
Target date 2045 (RBHTX) = 1.48%
Target Date 2040 (RBKTX) = 1.48%
Target Date 2035 (RBFTX) = 1.48%
New economy fund (RNGBX) = 1.63%
Fund of America (RGABX) = 1.41%
SMALLCAP World fund (RSLBX) = 1.89%
EuroPacific Growth (RERBX) = 1.60%



to other available 401k funds such as
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) 0.17%
Fidelity Spartan Total Market Index Fund (FSTVX) 0.06%
Schwab Total Stock Market Index Fund (SWTSX) 0.09%
T Rowe Price Total Equity Market Index (POMIX) 0.35%
Northern Trust Stock Index (NOSIX) 0.11%
VFINX at 0.17% to VINIX at 0.04% to VIIIX at 0.02%



his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.
Last edited by StevenNJ1 on Fri May 23, 2014 3:32 pm, edited 2 times in total.

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StevenNJ1
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Tue May 06, 2014 3:12 pm

he did get nervous :-)

so he is saying that because our company size is small, we are getting the best that's out there.

true????

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rob
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by rob » Tue May 06, 2014 3:15 pm

Not sure of the question but small plans cannot usually access VERY cheap cost funds - sad but generally true and they are left to the sharks. If you mean anywhere under a 401K.... I pay less than those example fund expenses you list, so that's not true.
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ajcp
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by ajcp » Tue May 06, 2014 3:22 pm

Exactly how small is your company?

I'm inclined to say that's bs though. I work at a ~75 employee company. We have the exact target retirement vanguard funds, plus admiral shares of TSM and some others, that I could but straight from vanguard. Each month, a monthly fee is taken out that is essentially an extra .25% ER.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by avenger » Tue May 06, 2014 3:27 pm

StevenNJ1 wrote:Is this B.S.?

Just spoke to our American Funds advisor about my plan.

Compared our
Target date 2045 (RBHTX) = 1.48%
Target Date 2040 (RBKTX) = 1.48%
Target Date 2035 (RBFTX) = 1.48%
New economy fund (RNGBX) = 1.63%
Fund of America (RGABX) = 1.41%
SMALLCAP World fund (RSLBX) = 1.89%
EuroPacific Growth (RERBX) = 1.60%



to other available 401k funds such as
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) 0.17%
Fidelity Spartan Total Market Index Fund (FSTVX) 0.06%
Schwab Total Stock Market Index Fund (SWTSX) 0.09%
T Rowe Price Total Equity Market Index (POMIX) 0.35%
Northern Trust Stock Index (NOSIX) 0.11%
VFINX at 0.17% to VINIX at 0.04% to VIIIX at 0.02%



his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.
I wonder if he thinks ERISA would feel the same way.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [3 fund portfolio: VTI, VXUS, SV fund (yield 3.01%)]

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Toons
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Toons » Tue May 06, 2014 3:30 pm

Looks like you have the "R" share class of American funds -retirement-expense ratio much higher.
What he is saying is not true regarding funds you mentioned.
We currently have monies invested in funds in former employer 401k,
Fidelity Spartan Index Fund,Vanguard Total Bond ,with expense ratios similar to what you mentioned :happy
Informative link below regarding R share class.

http://mutualfunds.about.com/od/typesof ... Shares.htm
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by EddyB » Tue May 06, 2014 3:46 pm

StevenNJ1 wrote:he did get nervous :-)

so he is saying that because our company size is small, we are getting the best that's out there.

true????
I administer my wife's solo 401(k) plan at Vanguard, where she gets Investor-class funds. Can't get smaller than solo.

2retire
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by 2retire » Tue May 06, 2014 3:50 pm

Not true at all. Have him (or do it yourself) look into Employee Fiduciary or The Online401k. Even Vanguard can give you a quote for a small business at those low fees. I got a quote from Vanguard myself and presented it to HR and Finance people.

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StevenNJ1
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Tue May 06, 2014 3:54 pm

So it appears that adviser is an "INDEPENDENT" adviser we hired to help us manage and he is NOT from American Funds.

our company size is about 120 employees. Not all are contributing.

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate
Last edited by StevenNJ1 on Tue May 06, 2014 3:55 pm, edited 1 time in total.

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ruralavalon
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by ruralavalon » Tue May 06, 2014 3:55 pm

StevenNJ1 wrote:Is this B.S.?

Just spoke to our American Funds advisor about my plan.

. . . . .


his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.

. . . . .

so he is saying that because our company size is small, we are getting the best that's out there.

true????
He may be trying to say that if they offered the other funds, American would jack up the expense ratios by adding an administrative fee.

It is true that smaller plans cannot get access to the very lowest ER institutional class shares of funds.

Because you are small you will not get the best that's out there. But you are certainly not getting the best that's available for a small 401k.

Examples:
Employee Fiduciary, LLC
Vanguard Small/Mid plans (startup to $20M)

What did your EVP say?
What did your HR say?
StevenNJ1 wrote:Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate
A 04% match is nice, some plans have no match, I never had a match. What's better is a match with reasonable or low expense ratios.

Was the CFO hostile to you or to the idea of getting lower expense ratios?

At a 05% return rate, the principle is the same and the impact of a 1% expense ratio still huge.

Your employer could get a better provider than American.
Last edited by ruralavalon on Tue May 06, 2014 4:07 pm, edited 1 time in total.
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masteraleph
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by masteraleph » Tue May 06, 2014 3:59 pm

Giving the advisor the benefit of the doubt, it's possible that what he really means is: "Your company doesn't want to pay the fees for the 401k, so they're offloading it to you. If you want those low cost funds, there's going to be a big administrative fee to make up the cost."

Alternatively, he's just trying to make money, which is probably true.

traveler90
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by traveler90 » Tue May 06, 2014 4:06 pm

I have VINIX in my 401k at the 0.04 ER... And my company is 25 employees

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Ged » Tue May 06, 2014 4:35 pm

StevenNJ1 wrote: Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)
The match is given once, on that year's contribution. The fee you are paying is a hit every year on your entire account. Your CFO is BS-ing you.

My last employer was tiny. Like about 10 employees. He still managed to have a couple of low cost funds.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Toons » Tue May 06, 2014 4:52 pm

StevenNJ1 wrote:So it appears that adviser is an "INDEPENDENT" adviser we hired to help us manage and he is NOT from American Funds.

our company size is about 120 employees. Not all are contributing.

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate

"Total expenses for larger plans should be "well under 1%," preferably 0.5% to 0.75%, says Mike Alfred, chief executive of BrightScope Inc., a financial-information firm in San Diego that rates 401(k) plans. If you're paying between 1% and 2% of your assets' value, you may want to investigate why expenses are that high"

"A recent study for the Investment Company Institute of 525 defined-contribution plans, including 401(k)s, found that the median participant pays 0.78% a year. That means the median 401(k) account balance of $18,000 is charged $140 a year."

"About two in five workers are in plans that match up to 6%, and 10% match more than that, according to federal data. Most give you 50 cents for every dollar you put in. About 9% match 51 cents to 99 cents on the dollar, and 36% match at 100%."

Read closely :happy
Your CFO might like to read this info.
http://online.wsj.com/news/articles/SB1 ... 0194471268
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by lawman3966 » Tue May 06, 2014 4:55 pm

StevenNJ1 wrote:Is this B.S.?

his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.
Your advisor is wrong, but serving his own interests well, which is no surprise. By the way, from what you've said above, it is entirely possible that you are paying fees in addition to the expense ratios that you've listed. Many plans charge numerous fees in addition to the expense ratios of the funds. (In a video article on 401K plan, which is available on Youtube, Bloomberg news counted 17 fees all told in one plan they analyzed).

My former firm had a 401K plan with Employee Fiduciary and had access to Vanguard index funds with the same, or lower, expense ratios as I'm able to invest in my personal accounts.

However, small firm plans may have other fixed-fee (as in, not a percentage of assets) administrative expenses that could represent a significant percentage of the plan's assets in the early years of the plan. However, your firm is not really small at 120 employees. At that size, there are many much lower fee 401K plans you could have access to. Employee Fiduciary is one, but with that number of employees you could try calling Vanguard or Fidelity directly to conduct some comparison shopping.

The 4% match is a good deal, but I can't see any reason why you couldn't have both the match and low fee funds. There may be tax reasons, or preferential treatment of the plan trustee by the plan provider that would motivate the trustee to pick a high fee plan.

You should know that if the plan trustee is making money off the arrangement, it might be impossible for you to change the plan. Moreover, you might want to evaluate whether antagonizing the plan trustee could harm your status at the employer or even endanger your job. The plan providers are skilled at dividing and conquering by providing preferential treatment for the trustee and then getting paid back many times over by imposing high ERs and other high fees on the plan participants. Unfortunately, that is the reality of the 401K system.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Tue May 06, 2014 4:56 pm

ruralavalon wrote:
StevenNJ1 wrote:Is this B.S.?

Just spoke to our American Funds advisor about my plan.

. . . . .


his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.

. . . . .

so he is saying that because our company size is small, we are getting the best that's out there.

true????
He may be trying to say that if they offered the other funds, American would jack up the expense ratios by adding an administrative fee.

It is true that smaller plans cannot get access to the very lowest ER institutional class shares of funds.

Because you are small you will not get the best that's out there. But you are certainly not getting the best that's available for a small 401k.

Examples:
Employee Fiduciary, LLC
Vanguard Small/Mid plans (startup to $20M)

What did your EVP say?
What did your HR say?

StevenNJ1 wrote:Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate
A 04% match is nice, some plans have no match, I never had a match. What's better is a match with reasonable or low expense ratios.

Was the CFO hostile to you or to the idea of getting lower expense ratios?

At a 05% return rate, the principle is the same and the impact of a 1% expense ratio still huge.

Your employer could get a better provider than American.


So ......... HR at first was very defensive. CFO listened and half way through interrupted to talk about our amazing 4% match and how no one out there is as generous.

At the end of the meeting .... both said... "please send this presentation to us, you'll be present next time we have a sit down with 401k provider, we'll look into it, thank you." eh

:-)

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by ruralavalon » Tue May 06, 2014 5:13 pm

StevenNJ1 wrote:
ruralavalon wrote:
StevenNJ1 wrote:Is this B.S.?

Just spoke to our American Funds advisor about my plan.

. . . . .


his response .......... you aint getting those funds under 401k with those low expense rates.
If you did, those rates would be MUCH MUCH higher.

. . . . .

so he is saying that because our company size is small, we are getting the best that's out there.

true????
He may be trying to say that if they offered the other funds, American would jack up the expense ratios by adding an administrative fee.

It is true that smaller plans cannot get access to the very lowest ER institutional class shares of funds.

Because you are small you will not get the best that's out there. But you are certainly not getting the best that's available for a small 401k.

Examples:
Employee Fiduciary, LLC
Vanguard Small/Mid plans (startup to $20M)

What did your EVP say?
What did your HR say?

StevenNJ1 wrote:Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate
A 04% match is nice, some plans have no match, I never had a match. What's better is a match with reasonable or low expense ratios.

Was the CFO hostile to you or to the idea of getting lower expense ratios?

At a 05% return rate, the principle is the same and the impact of a 1% expense ratio still huge.

Your employer could get a better provider than American.


So ......... HR at first was very defensive. CFO listened and half way through interrupted to talk about our amazing 4% match and how no one out there is as generous.

At the end of the meeting .... both said... "please send this presentation to us, you'll be present next time we have a sit down with 401k provider, we'll look into it, thank you." eh

:-)
The CFO is right that the match is generous. I hope HR got over being defensive, don't say anything that will fuel any defensiveness. Sounds more than half-way hopeful for the future, as they asked for a copy of your presentation and will have you in on the next provider meeting.

In anything you say or present, remember that high ERs hurt the managers as much as they hurt other employees.

For now what you should do is set up your automatic contributions at a level that will get you the full match.
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dbr
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by dbr » Tue May 06, 2014 5:19 pm

ruralavalon wrote: The CFO is right that the match is generous. I hope HR got over being defensive, don't say anything that will fuel any defensiveness. Sounds at least half-way hopeful for the future, as they asked for a copy of your presentation and will have you in on the next provider meeting.
If the statement is that the company is willing to enrich the fund provider and do it out of the company's pockets rather than the employees pockets, which is what the combination amounts to, then more power to everyone. However, if the fees were less the employees could have the match and the low fees, so the CFO might be BS'ing himself.

Also, the contribution is or isn't generous depending on the company wide payscales and the rest of the benefits program, not that one should sneer at a good match.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Blue » Tue May 06, 2014 5:41 pm

We shopped this a few years back when our plan was between $2 and $3 MM with ~ 75 participants (now closer to $5MM). At that time, we found a local independent RIA to be fiduciary for 25 bps and a local TPA with their record keeper for about 25 bps and have an array of signal and admiral class shares Vanguard index funds including target retirement. Fees for the RIA/TPA are billed to participants in a transparent fashion. We don't provide a match but provide a safe harbor contribution typically between 3% and 5%. Your employer should be shopping for a better plan.

Good luck.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Sagenick48 » Tue May 06, 2014 5:48 pm

Having read the following

"The plan providers are skilled at dividing and conquering by providing preferential treatment for the trustee and then getting paid back many times over by imposing high ERs and other high fees on the plan participants. Unfortunately, that is the reality of the 401K system."

I thought to myself, Gee this sounds a lot like the Central States Teamsters Plan of 25 years ago. The more things change, the more they are the same.
The market goes up, the market goes down.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by simpleton » Tue May 06, 2014 6:44 pm

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.
It is exactly because the match is so generous that you wish to preserve the value of that benefit and ensure that it is not needlessly eroded by unnecessary fees.

The important thing to do with the CFO is to reframe the fee discussion of how fees are analyzed.

Step one is the separate out the necessary investment costs (less than 0.2% for index funds) from the markup imposed by the administrators (in your case the remaining 1.3%).

Talk about how those two fees should be considered independently, and never refer to your administrative fees as a percentage of assets. Always refer to admin fees as the average monthly dollar amount per person. Find out what your average assets and annual employee/employer contributions are (you can find the aggregate info on your company's form 5500 and divide by the number of participants). From the average balance you can calculate your average monthly admin fee by multiplying by 1.3% and dividing by 12. From the average contributions you can calculate your scheduled monthly price increase by multiplying by 1.3% and dividing by 144.

Suppose you find that your plan had an average balance of $50,000 and average combined contributions of $11,000 (Just numbers I made up).

Monthly per-person admin fees (currently): $50,000 * 1.3% / 12 = $54
Monthly per-person scheduled price increase: $11,000 * 1.3% / 144 = $1.00

Those are the two number you want to hammer home. Why does it cost so much per person? None of my other financial accounts charge maintenance fees that high. Why do the per-person admin fee scheduled to keep going up each month on auto-pilot? Did the administrators do more work for me this month than they did last month? Do they plan on doing even more work for me next month?

Show how when the fees increase on autopilot it puts the company in the risky situation of continually having re-determine that the higher fees are still reasonable "in light of the level and quality of service provided" Does the average participant receive more or higher quality service each month to match the higher dollar amount they are paying in fees?

Lastly contrast those fees with a plan like the Vanguard Small Business plan. They'll charge you somewhere around $5-$8/month in fees. The admin fees they charge per-person actually go DOWN slightly over time as your company and asset base grow, due to economies of scale built into the pricing structure. Why doesn't your current plan schedule in the economies of scale?

Let them know you just read the SEC bulletin How Fees and Expenses Affect Your Investment Portfolio. Point out that the SEC uses 1% as it's highest fee example. Tell them you are concerned that your fees are so high they're literally OFF THE SEC's CHART :oops:

Let him know that Mercer Consulting has an extremely well thought out white paper: Fee Management: Mitigating Fiduciary Risk and Maximizing Plan Performance that explains in detail how he can do a better job keeping the company safe by more rigorously managing how fees are negotiated and computed.

Since I'm throwing around white papers, S&P Dow Jones has a great one that explains to CFO types why the company is better off using index funds in the plan: REDUCING THE ADMINISTRATIVE BURDEN WITH INDEX FUNDS

Lastly, go ahead and call Employee Fiduciary and Vanguard yourself and get a proposal to present to your CFO. It's easy to do, and you can print it out and pop the proposal down on the CFO's desk if you want. The worst he can do is ignore it.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by WallyBird » Tue May 06, 2014 8:06 pm

I always wonder if, in these discussions with the higher ups, it might be good to gently remind them that those high fees are hurting the returns of *all* plan participants... including the CFO, the HR person, etc.
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by hmw » Tue May 06, 2014 8:13 pm

Do the executives pay the same fees as the average Joe in the company?

I have a pretty terrible 401k at work too. Almost all funds have ER over 1%. The cheapest index fund has a ER of 0.9%. It seems to be pretty common for small companies. Has anyone been successful in convincing HR to switch to a low cost 401k?

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by pkcrafter » Wed May 07, 2014 1:03 am

Steven, your R-2 share class funds carry 0.75% 12b-1 fees. This is commission that is going back to the advisor and it could mean a conflict of interest. Did you review the plan fees disclosure when it came out? There definitely should not be an advisory fee listed. Don't bother talking to the advisor, he's getting paid by those high fees.

Important question -- is your plan subject to ERISA rules? If so, someone must be assigned the responsibility of fiduciary. I hope it's not the CFO because he may have a personal reason for defending the high ERs and 12b-1 fees.

Read these links for background/information.

http://money.usnews.com/money/blogs/the ... -your-401k

http://fiduciarynews.com/2013/03/dol-sm ... sors-next/

http://www.erisafiduciaryadministrators ... e-sharing/

Paul
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by HardKnocker » Wed May 07, 2014 7:04 am

There is usually politics involved in these arrangements. What? You're going to sue your CFO? Not a good idea.

The CFO is telling you they like the current arrangement (for whatever reason).

What funds are actually available through your current 401k plan? Just American Funds? Is this an American Funds 401k plan?

If it is then you are stuck unless the company wants to change the plan. It appears they don't. There's more expense if they change the plan. Somebody got sold this plan in the past for whatever reason.

You can win the battle and lose the war by pushing too hard here. Do you like your job? Sometimes you just live with it.

Invest to get the match. Perhaps it's best to move on. You tried. Open a Roth IRA if you are eligible. A tax efficient index fund for after-tax money.
Last edited by HardKnocker on Wed May 07, 2014 7:26 am, edited 1 time in total.
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by BigTom » Wed May 07, 2014 7:09 am

StevenNJ1 wrote:So it appears that adviser is an "INDEPENDENT" adviser we hired to help us manage and he is NOT from American Funds.

our company size is about 120 employees. Not all are contributing.

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate
I think your boss is a dick

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StevenNJ1
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Wed May 07, 2014 8:59 am

:-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by uvadk » Wed May 07, 2014 9:13 am

Steven,

We went through a switch from ING (with very high expense ratio funds and fees) to Vanguard/Ascensus over a year ago. We now have an all Vanguard fund lineup (including Signal share classes with exp ratios as low as 8-9 bps) and could not be happier. Only caveat is that we did have to bring on a separate TPA given some of the issues particular to our 401k. We have approx 250 employees and overall assests around $12M, but Vanguard/Ascensus will work with smaller to my knowledge. See link below:

http://www.bogleheads.org/forum/viewtop ... 10&t=93285

As far as making the change - it was a bit easier for me being a partner in a practice. However, I think the key here is explaining to those involved that lowering costs will help EVERYONE in the plan in the long run (of course it will not help your advisor who is pocketing those fees). Show them data (including Morningstar study) showing only predictor of high quartile fund returns is low quartile fund expenses.

This has nothing to do with whether or not a match is offered.

Hope this helps.
DK

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Wed May 07, 2014 9:39 am

what I am curious to know is ... is the CFOs argument valid? Are we paying high fees (an no way around this) because our total asset as a company is low? Because not many people contribute, etc??? is this a dead end???

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by rob » Wed May 07, 2014 9:50 am

StevenNJ1 wrote:we match 4% and that's almost unheard of
Well - That part is easily not true... granted not average but certainly not "almost unheard of".
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Tim_in_GA » Wed May 07, 2014 9:57 am

The rep for our 401k plan came in one day for an info session. He talked about fees and said that people at Coca-Cola (because we are in the ATL area) don't get expenses as low as we do. All our funds average over 1% in fees! When he said that I quickly lost interest in anything else coming out of his mouth.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by JW-Retired » Wed May 07, 2014 10:07 am

StevenNJ1 wrote:what I am curious to know is ... is the CFOs argument valid? Are we paying high fees (and no way around this) because our total asset as a company is low? Because not many people contribute, etc??? is this a dead end???
It may be partly self perpetuating. Certainly some of the low and non-contributors are folks who recognize this is a bad 401k. Typical Boglehead bad-401k advice would be to invest enough to get the max match and then save elsewhere.

How much do you need to put in to get the 4% match?
JW
Retired at Last

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by stan1 » Wed May 07, 2014 10:19 am

StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
That's an advantage of a small company -- you have direct access to the decision makers. Sounds like the CFO is open to your help and ideas. Now what I would do is ask him to give you some data (such as total assets in the 401K, how many employees/percentage participating, what fees if any the company is paying to the advisor or administrator, when the contract with the administrator is up for renewal, etc.) . Help build a business case and have him task you to help HR investigate some alternatives.

Sounds like a great opportunity for you to increase your value to the company.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by simpleton » Wed May 07, 2014 10:24 am

JW Nearly Retired wrote: Typical Boglehead bad-401k advice would be to invest enough to get the max match and then save elsewhere.
I disagree.

The fees are stupid high, but it is still advantageous to cram as much money into tax-advantaged accounts as possible. The way I look at it is that the tax subsidy for having money in a 401(k) is about 1%-1.25% per year. As long as your money is in this account that entire tax subsidy is being redirected into your advisor's pocket, but you're not actually worse off than you would be using a taxable account. As soon as you can put your money in a lower cost account (either the company comes to its senses or you rollover to an IRA when you leave) you begin reaping the benefits of having the money tax-advantaged. Even if that takes a decade or more, you'll still come out ahead in the long term.

It's annoying to fork over your money to these people, but you shouldn't cut off your nose to spite your face.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by nash031 » Wed May 07, 2014 10:36 am

StevenNJ1 wrote:So it appears that adviser is an "INDEPENDENT" adviser we hired to help us manage and he is NOT from American Funds.

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)
My wife works for a non-profit that gives 12% of salary (once vested, and on top of negotiated salary) to their retirement regardless of if you're contributing to the 403(b) or not. Granted, it's a large non-profit, but it's a non-profit nonetheless. 4% isn't "unheard of."

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by placeholder » Wed May 07, 2014 12:05 pm

According to BrightScope Coca Cola has very low fees:
http://www.brightscope.com/401k-rating/ ... 401K-Plan/

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by leonard » Wed May 07, 2014 12:32 pm

StevenNJ1 wrote:he did get nervous :-)

so he is saying that because our company size is small, we are getting the best that's out there.

true????
Completely untrue - some might call it a lie.

You can get the indexes with the published, extremely low ER's. Your 401k admin just needs to implement them.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by leonard » Wed May 07, 2014 12:35 pm

StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
Your CFO shouldn't be a CFO.

Higher assets simply get you an obscenely low ER - due to qualification for Institutional Shares. However, "low asset" 401k's can still easily get low ER shares of index funds. It's laughably easy to get that right.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by tesfou » Wed May 07, 2014 12:37 pm

Apparently he is not very good at math. A reasonably well tenured employee with $250,000 or more in their account and a low 6 figure salary would be losing their entire match every year just to cover fees.

Ask him what a great deal it would be for a 55 year old CFO with a $1.5 million dollar balance in his 401k to waste an extra $15,000 out of his pocket on fees, and forfeit the future gains on that money. The more senior an employee the more skin they likely have in the game.
StevenNJ1 wrote:So it appears that adviser is an "INDEPENDENT" adviser we hired to help us manage and he is NOT from American Funds.

our company size is about 120 employees. Not all are contributing.

Our CFO's response is ... you're still getting a great deal here ... we match 4% and that's almost unheard of ... if you go for average of just 1-2% company match, then those extra $0.5 in fees are nothing. The keyword of conversation was ... we give you 4% match ... be happy. That's more important than the 1.5% vs 0.5% fees.

whadaya think? :-)

P.S. CFO also questioned my calculator being toooo optimistic at 7% return rate

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by DTSC » Wed May 07, 2014 1:24 pm

leonard wrote:
StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
Your CFO shouldn't be a CFO.

Higher assets simply get you an obscenely low ER - due to qualification for Institutional Shares. However, "low asset" 401k's can still easily get low ER shares of index funds. It's laughably easy to get that right.
Perhaps you should approach the CFO with the perspective of saving the *company* rather than the participants money. If the participants have to pay a lower ER, the company has to match a smaller amount and still have the same outcome

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Wed May 07, 2014 1:49 pm

leonard wrote:
StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
Your CFO shouldn't be a CFO.

Higher assets simply get you an obscenely low ER - due to qualification for Institutional Shares. However, "low asset" 401k's can still easily get low ER shares of index funds. It's laughably easy to get that right.

Well ... what our "independent" advisor said is .... "you are not eligible for those very low 0.20% funds in 401k" ... as if, it's impossible to have those rates in a 401k. Maybe if it's a "managed" 401k?

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Dulocracy » Wed May 07, 2014 2:09 pm

Our firm has about 12 employees. We have access to low-cost DFA and Vanguard funds. The expense ratios for employees range from 0.07% to around 0.40% as memory serves. We do have a paid adviser for the employees to consult. He is paid by the hour by the firm. We pay a company to administer these funds. That cost is also paid by the firm. The employees' cost is precisely the expense ratio published on Morningstar, since the firm pays directly for the fees. Even if the firm chose not to pay the fees, I believe I recall that they would add about 0.40% (because we have few employees and would not have as much money in the account). Since we did not go with that option, I no longer have the paperwork in front of me to verify, but I am fairly certain that was the deal. That would mean our expense ratios would be from 0.47% to 0.80% for a company with 12 employees. I hope that helps.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by simpleton » Wed May 07, 2014 2:18 pm

StevenNJ1 wrote: Well ... what our "independent" advisor said is .... "you are not eligible for those very low 0.20% funds in 401k" ... as if, it's impossible to have those rates in a 401k.
Your advisor's #1 priority is that his fee never shows up as a line item on your quarterly statements. People might start asking questions about why that line item is so high and keeps getting higher. He doesn't need that hassle. A better arrangement for him is to have the mutual funds in the plan collect his fee on his behalf (because mutual fund feeds don't show up on the quarterly statement) and then have it kicked back to him as a 12b-1 "marketing expense" of the fund.

If you used "very low 0.20% funds", your advisor would need to start transparently billing you for his services. His unwillingness to contemplate that option tells you all you need to know about how much his services are really worth.

I'll point you again to the Mercer white paper: Fee Management: Mitigating Fiduciary Risk and Maximizing Plan Performance. It gives you all the ammo you need to show your CFO that these kind of "under the table" fee arrangements no only harm participants, but also expose the company to needless fiduciary risk.
Mercer’s Fiuuciary Best Practices:

Based on DOL guidelines, case law, and extensive marketplace experience,
Mercer has established the following best practices to assist committee
members in satisfying their fiduciary requirements:

1. Price administrative fees on a per-participant basis.
Negotiate a fixed-rate recordkeeping fee, based on the number of
participants with account balances in the plan, that is independent of the
investment structure (referred to as an “open investment architecture”
model). This approach, unlike an “asset-based” or “bundled” model,
provides fee transparency and affords fiduciaries a sound basis for
documenting the “reasonableness” of recordkeeping fees. Conversely,
utilizing a pricing model that is dependent on the value of plan assets
arbitrarily “builds in” fee increases that are not linked to the level or
quality of the recordkeeper’s services
.

2. Benchmark and negotiate recordkeeping and investment fees separately.
Due to some recordkeepers’ preference for bundling DC plan services,
fees, and investments, plan sponsors tend to view fees from a total plan
perspective. However, a prudent fiduciary should evaluate and monitor
investment fees and recordkeeping fees separately.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by ruralavalon » Wed May 07, 2014 2:29 pm

StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
It sounds like the CFO is open to change. He's right that smaller plans in general pay higher fees, so that is part of the reason.

But it is possible to get much lower fees than you are paying. The CFO might be interested in getting bids from low-cost plan service providers the next time the contract with the current provider comes up. The request for proposal could require inclusion of low-expense funds in including index funds.

Her are some references:
401k, "Request for proposal (RFP)"
List of possible low-cost providers
Last edited by ruralavalon on Wed May 07, 2014 2:36 pm, edited 1 time in total.
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by abuss368 » Wed May 07, 2014 2:33 pm

That is incredible. The high fees would make me invest elsewhere!
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Re: What our company's 401k Advisor said about 1.5% Fees

Post by ajcp » Wed May 07, 2014 3:07 pm

StevenNJ1 wrote:
leonard wrote:
StevenNJ1 wrote::-)

thanks to all (HardKnocker, simpleton, pkcrafter and others)
great info. Loving this forum for all the great advise.

So .......... latest outcome this morning ...

CFO stopped me this morning after watching that video about "Retirement Gamble" you guys suggested. ... he said it's probably because of our low assets in the 401K due to company having young employees that don't contribute that much money that we are paying high fees. ..... I said I hope that we do a better job at negotiating and picking our providers next time around.
Your CFO shouldn't be a CFO.

Higher assets simply get you an obscenely low ER - due to qualification for Institutional Shares. However, "low asset" 401k's can still easily get low ER shares of index funds. It's laughably easy to get that right.

Well ... what our "independent" advisor said is .... "you are not eligible for those very low 0.20% funds in 401k" ... as if, it's impossible to have those rates in a 401k. Maybe if it's a "managed" 401k?
My 401k has a little more than half your employees and has TSM admiral, a bond index admiral, the target retirement funds, etc all at their standard ER. At best what he said was misleading, at worst it's an outright lie.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by bberris » Wed May 07, 2014 9:55 pm

Look at it this way. Your safe withdrawal rate is 4 %. You are paying 1.5 % per year. It doesn't matter that you aren't withdrawing yet. That 1.5 % fee is 37.5 % of your withdrawal. In other words, the advisor is taxing you 37.5 %. And you thought your government taxes were high!

If you plan on working there a long time, I would only contribute enough to get the match.
Last edited by bberris on Thu May 08, 2014 3:23 pm, edited 1 time in total.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Thu May 08, 2014 10:00 am

bberris wrote:Look at it this way. Your safe withdrawal rate is 4 %. You are paying 1.5 % per year. It doesn't matter that you aren't withdrawing yet. That 1.5 % fee is 37.5 % or your withdrawal. In other words, the advisor is taxing you 37.5 %. And you thought your government taxes were high!

If you plan on working there a long time, I would only contribute enough to get the match.
Very interesting point .... but ... how does it work when let's say on my 35th year I now work at a company that charges 1% fees ... will now that 1% fee take affect on entire amount saved? From what I understand fees of 1.5% are paid constantly. It's not like they wait till I retire to charge that fee. So when you show me this example, you're prorating ... or does this apply if I am still working at 65 years old and decide to start taking out money, whatever the current fee is, that's what I am being charged?

pretty much the question is ... is that 1.5% fee getting charged on portion of amount that was under that fee constantly or only while I am with that particular 401k plan

sorry if this sounds a bit dumb.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by Dulocracy » Thu May 08, 2014 10:21 am

StevenNJ1 wrote:
bberris wrote:Look at it this way. Your safe withdrawal rate is 4 %. You are paying 1.5 % per year. It doesn't matter that you aren't withdrawing yet. That 1.5 % fee is 37.5 % or your withdrawal. In other words, the advisor is taxing you 37.5 %. And you thought your government taxes were high!

If you plan on working there a long time, I would only contribute enough to get the match.
Very interesting point .... but ... how does it work when let's say on my 35th year I now work at a company that charges 1% fees ... will now that 1% fee take affect on entire amount saved? From what I understand fees of 1.5% are paid constantly. It's not like they wait till I retire to charge that fee. So when you show me this example, you're prorating ... or does this apply if I am still working at 65 years old and decide to start taking out money, whatever the current fee is, that's what I am being charged?

pretty much the question is ... is that 1.5% fee getting charged on portion of amount that was under that fee constantly or only while I am with that particular 401k plan

sorry if this sounds a bit dumb.
That fee is charged to your account on an annual basis. That fee applies to the entire balance of your account. If you rolled a 401k into your current company, that is now a part of the new balance. Every year, that fee is charged.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: What our company's 401k Advisor said about 1.5% Fees

Post by StevenNJ1 » Thu May 08, 2014 11:02 am

also ... is it fair to compare these 2 bonds funds

Vanguard Total Bond Market Index Adm
American Funds Bond Fund of Amer R2

i want to show a chart of bonds and how a 0.20% compares vs 1.39%

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