Can an Investment Professional (Legally) Mess Up Your Retirement?

By Teresa Conley | March 15, 2017

Is your investment professional a fiduciary, legally bound to put their clients' needs and interests above their own?

Teresa Conley is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyAt Premier, we believe that all investment management firms should offer advice that puts the client's interests first, rather than simply recommending financial products that are "suitable" -- and that end up making the investment professional a healthy commission. As a result, some investors may not be getting all they could from their retirement planning efforts. 

In early 2015, President Obama proposed a Labor Department plan that would crack down on non-fiduciary investment professionals' ability to push high-fee funds and other products that are currently legal, but that don't necessarily work in investor's best interest. Current laws are more than four decades old, and allow biased advice that cost investors up to $17 billion each year, according to Bloomberg. 

Here's what you need to know about the ways that unscrupulous brokers and advisors can currently -- and legally -- put your retirement at risk. 

401(k) Rollover: It's Not Always Necessary

Employer-sponsored 401(k) plans generally offer a range of investment options and low fees, making this type of investment a viable option for those saving for retirement. Unfortunately, many investment professionals urge their clients to complete a 401(k) rollover, moving those funds into individual retirement accounts. 

If your advisor is pushing you to move your 401k funds into an IRA, be sure to research the fees and costs involved. They may be higher than what you're paying in your current 401(k). 

Wealth Management Fees: Don't Overlook the Hidden Costs

If you purchase a mutual fund through a broker, watch out for the load fees. These fees often don't show up on your statement, but they can eat up as much as 5 percent of your investment right off the bat. 

You should also keep your eyes peeled for other fees that may be even harder to spot than load fees. Hidden costs such as 12b-1 fees -- somewhat obscurely named for a chapter in the Investment Company Act of 1940 -- are often slipped into a fund's fees each year. While such fees and expenses should be disclosed, they can be very hard to pin down. 

Active Bias: Not an Effective Wealth Management Strategy

As we've written about extensively in the past, actively managed funds have a poor track record as compared to low-cost institutional funds. Premier advocates a truly diversified portfolio based on a strategic, passive approach, as based on a myriad of peer-reviewed studies. 

However, many advisors offer investment guidance based on an active approach, ending up costing investors much more in the fees and expenses associated with high portfolio turnover. In fact, a 2012 study from the National Bureau of Economic Research found that 85 percent of investment professionals tried to talk mystery shopping "clients" into trading their low-fee, highly diversified portfolios in for actively managed funds. 

All of these hidden fees serve a purpose: When advisors push selling these products they earn commissions. Higher fees and costs reduce investors' returns, leading to poor performance. The solution is simple: Work with a trusted retirement plan fiduciary who is legally bound to place your interests first. 


Posted in Retirement Planning, 401(k) Retirement Plans