The other common fee is called a “wrap fee” and this can mean anything. It’s a general fee that is used to cover anything from phone calls and faxes to keeping the lights on in the building. It also doesn’t help that the way the investment firms explain the fees and how they are paid is unclear.
Read Related: How to Save for Retirement Without Noticing
WHY DOES IT MATTER? Fees are important because a difference of 1% in fees can reduce your portfolio by as much as 28%. Consider this statement from the U.S. Department of Labor:
Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000.
You will have lost $64,000 due to one little percentage point.
NEW RULES The new rule from the Labor Department will help individual investors get a better handle on their investment accounts, but you’ll still have to do lots of the heavy lifting yourself. Here’s a closer look at what to expect from the implementation of the new rule: