No hidden fees, period…

We have always maintained a full-disclosure relationship with our clients, and transparency is nothing new at Wellington.  As a fee-only investment advisory firm, we don’t make money from selling you a specific fund family or recommending Class A over Class C (as brokerage firms do), or hiding fees inside prospectuses (as insurance companies often do). Our goal is the same as yours: Make your account grow.

Having been in the retirement plan consulting business for over 20 years we have seen the majority of the smoke and mirrors that come into play with other providers. You need to know what questions to ask, and we will try to outline some of them here.

1. Hidden Fees

Be careful of broker-sold retirement plans which initially state low recordkeeping fees. Insurance companies and brokerage firms generally have higher internal management fees in the investments that they offer which affects your return. Since you cannot see them, you really have no idea how much you are paying in investment management fees. We have seen insurance company annuities with as much as 3% internal management fees. Keep in mind the broker is not working for free, he or she is getting paid somewhere.

2: Get a Prospectus

Request a prospectus on each fund or at least the investments symbol. This way you can look the fund up on popular financial sites such as Yahoo! Finance and see what the expense ratios and long term investment track records are. If the fund does not have a symbol, it is most likely an insurance company annuity that is padded with extra fees like a mortality expense in addition to the investment expenses. If the insurance company refuses to provide you with services agreement, it’s probably because they don’t want you to find out about the hidden fees.

3: Beware of Cloned Funds

Be careful of the cloned mutual funds. For example, Insurance company A states that they have a clone of a popular good performing fund, except that it does not have the same symbol. Here’s what they do: they form a separate account which invests in the other fund. Both accounts have fees, so you are paying an extra layer of fees. Why not just buy the well-performing fund directly!

4: Front-Load Fees and Deferred Sales Charges

Be sure that you don’t have any front-load fees (fee to purchase a fund) or back-load fees (deferred sales charges, a fee to sell a fund). Unfortunately, many people are unaware that they are being charged a fee as high as 5%. Many plan sponsors feel tied to a provider once they find out there are deferred sales charges. Just remember: the longer you stay with a provider who charges fees for purchasing or selling a fund, the more it ends up costing you and your employees.

These are just a few of the things to watch out for. At Wellington, we do not receive any compensation from any of the investment funds, so you know that we do not have a conflict of interest.  We are a full-disclosure company, so you won’t have to worry about buried fees.

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