Your Retirement Account Should Look Like a Nutrition Label
Does your retirement adviser have your back? A recent study by the White House suggests the answer might be no, and that's costing Americans $17 billion a year. Every retirement fund comes with associated fees, taken out by the managing broker in the form of a percentage on the return. It's how the financial adviser who manages your 401(k) makes his money and is supposed to incentivize him to do the same for you.
The trouble is that this creates a conflict of interest between brokers and their clients in the form of high-fee funds and back end incentives. You see, not every investment fund is priced the same. One might cost a simple 0.25 percent on the dollar, while another will claim the potential for far greater returns but charge 1 percent.
Financial advisers are supposed to represent the best interests of their clients in navigating this issue, given the specialized knowledge it generally takes to make a meaningful distinction between what one investment package means versus another. Unfortunately, when the higher priced fund means a lot more money for your broker, even if a more conservative approach could be the wiser course for an investor, incentives get muddled. It gets even worse when third party firms offer explicit commissions for brokers who steer their clients into particular investments.
