What you don’t see can hurt your investment results.
Given the rules about fiduciaries (i.e. The Prudent Man Rule) and the sheer number of people looking over a 401k program before it goes into effect, one would think that these plans would be more efficient and less costly than the average mutual fund.
This is not necessarily true.
As my practice grows I have more and more opportunities to manage 401k plans for my clients’ businesses. Early in that discussion is a review and an independent analysis of the current plan. Cost is one of the items on that list, but at that point in the process, it is by no means the highest priority for the business owners. In almost every case those in charge believe that their costs are below average.
I like to start with this “trap” because by the time I’m done, COST rises to the top as one of the main reasons that a plan administrator will retain my services. And this is not because their current costs are much higher than average – they are just higher than what was originally understood.
Consider the following to see why this is the case…