My employer used to run its 401k plan through Fidelity, one of the more popular brokerage services—and 401k providers—on the market. When I logged onto the Fidelity NetBenefits website and took a look at my account, I had only one question: What exactly are all these Fidelity 401k fees?
According to Investopedia, a study by TD Ameritrade revealed that only 27% of investors knew how much they paid in 401k fees, while 37% didn’t realize they paid fees at all. I was determined to step out of the 73% who weren’t sure exactly where their hard-earned money was going. Similar to my own personal Roth IRA account with Edward Jones, fees were taking a bigger bite out of my investments than I first realized.
Where can I find my Fidelity 401k fees?
Whether due to my own ineptitude, or through deliberate camouflaging on Fidelity’s part, I could not for the life of me figure out what these additional fees were. The info that I sought is information that your 401(k) provider must supply you—yet I could not locate and account for these mysterious fees. A few days after giving up on Fidelity’s website, I happened to receive an email with Fidelity’s annual prospectus disclosure and viola, a CTRL F later and I finally uncovered the fees that were eating up nearly one percent of my account on an annual basis. You can find this required disclosure information under the Plan Information and Documents tab on your account.
Assuming I’m not the only one who sucks at navigating an unfamiliar financial services website, I wanted to spell out those fees in somewhat plain English. For those who don’t have a 401k plan through Fidelity, this information should still prove somewhat valuable, as it allows you to compare the fees in your own plan to another provider. I had a next-to-impossible time finding my own 401k provider’s fees, never mind search for those of competing plans.
Retirement account fees are like the rust eating away at your engine. You may not notice the small leak that they cause, but over time the amount of oil spilled is significant. I don’t know sh*t about cars so I hope that analogy had the desired effect. Fees aside, if you don’t participate in your company’s 401k plan, I would certainly recommend doing so in order to receive any company match, and would likely recommend it even if you don’t receive a match.
Should You Contribute To Your 401k Without A Company Match?
Now, let’s take a look at the Fidelity 401k fees that I’m paying.
Expense Ratio – Individual fund fees that you’ll deal with regardless of you 401k provider
My Cost: 0.015%, or $15 of $100,000 portfolio – (this is the only fee that I was aware of)
Most of us know that we’ll pick from a list of several funds within our 401k plan to invest our money, and these funds come with a fee known as an expense ratio, ranging from .001% to a full 1.0%. Of course, I’d recommend a low-cost fund such as one that tracks the S&P 500 index, often on the low end of the fee spectrum. Even a target date retirement fund, which will likely cost an extra tenth of a percent but will rebalance your investments automatically, is a great low-cost option. Actively managed mutual funds will cost you anywhere from half a percent to more than one percent, and you don’t often get what you pay for. When I first began investing in my 401k, I assumed this was the only fee I had to concern myself with. Turns out, like usual, I was wrong.
It’s important to keep expense ratios low, but even more so when your account is bleeding fees worth an additional percent of your account balance. In my case, I invested in the Fidelity S&P 500 fund, FXAIX, which carries a very low expense ratio of 0.015%, or less than two-hundredths of a percent. Control the fees you can control, I say.
Now, for the Fidelity administrative fees that I didn’t know I was paying. A large portion of my net worth is tied up in index funds, including roughly $150,000 in my employer-sponsored 401k plan. But let’s go with a $100,000 portfolio as an example to keep the math even simpler.
Recordkeeping Fee
My Cost: 0.58%, or $580 of a $100,000 portfolio
For Fidelity’s 401k plan at my company, the language regarding the recordkeeping fee read: The annual Plan level fee is 0.58% of the Plan’s assets. This amount will be deducted from participant accounts proportionally based upon account balance.
Pretty straight-forward. More than half a percent of my assets are diverted to Fidelity for the recordkeeping expenses they incur to operate the plan. I don’t know how common this is among 401k plans, or what percentage of employers will go ahead and cover this rather large cost (I’ve heard that some do). But I do know that it seems a tad excessive to me, and I would prefer it to be a flat fee as opposed to corresponding directly to my individual balance. I can understand that costs increase somewhat proportionally to a company’s cumulative assets, but I very much doubt that they increase at such a rate. From what I can find, $100-200 per participant is a standard amount to pay for administrative fees. Not, for a balance of nearly $100,000, $580 per year. An amount that will only increase with my balance.
Advisor/Consultant Fee
My Cost – 0.30%, or $300 of a $100,000 portfolio
Rightfully perturbed as I was by the recordkeeping fee, I take more issue with the advisor/consultant fee, despite the lesser cost. Per Fidelity: The annual Plan level fee is 0.30% per year for the first $9,999,999.99 of the plan assets. This percentage does decrease slightly, down to 0.20%, depending on the amount invested in your company’s plan. But assuming your company has less than $10 million in assets, Fidelity gets another three-tenths of a percent for their advisory expertise.
What bothers me about the advisor/consultant fee is that I don’t use Fidelity’s advisor/consultant services. At all. As for my company, they may invite Fidelity to man a booth at a benefits fair once a year, or hold a sparsely-attended financial literacy class on occasion. Apart from those contributions, I can’t help but think we overpaid for their services. With a portfolio of $100,000, lop off an additional $300 for this counsel.
Total fee percentage: 0.895%
Total annual cost to a $100,000 portfolio: $895
To reiterate, fees add up. No matter what they’re called, or where they’re hidden, they add up. With Fidelity’s 401k plan, you can expect to pay nearly nine tenths of a percent each year in addition to the expense ratio on the fund that you hold. This may not sound like much, but when you consider that this is an annual cost robbing you a portion of the benefits of compound interest, these fees will cost you a huge amount over the course of your investing life.
I’m not trying to rag on Fidelity. My 401k fees are not on par with the Edward Jones heist. And I understand the need for bookkeeping fees from the provider’s point of view. My issue is with the secretive nature of these fees, buried in an annual prospectus. I would imagine that the annual email disclosure goes mostly ignored by my coworkers.
So how does Fidelity measure up with other 401k plans? Actually, not all that poorly. According to Investopedia, Fidelity falls in line with the industry standard:
Ranging from 0.5% to 2%, 401(k) plan fees can vary greatly, depending on the size of your employer’s 401(k) plan, the number of participants, and the plan provider.
Maybe it’s not them, it’s me. But any fee is a fee too much, especially so if they make them hard to find.
For the sake of further comparison and understanding, do you know what kind of fees are in your 401k plan?
