This robo-advisor could save you a fortune in 401(k) fees

What most people don’t understand about 401(k) fees is that the amount of money that goes towards fees grows with your portfolio since the fees are charged as a percentage of your net 401(k) asset value. 401(k) fees can be broken down into account maintenance fees, investment fees, and 12b-1 fees which, if very high, could stunt your capital gains considerably by the time you reach retirement.

Interestingly, 12b-1 fees go towards funds advertising expenses and could cost you up to 0.75 percent of total assets annually. A report from the U.S Bureau of Labor Statistics mentioned that employees could be paying up to 2.56 percent of their 401(k) assets towards fees every year. That amounts to an annual fee of $256 for a $10,000 401(k) account and $2,560 for a $100,000 401(k) account. 

Your 401(k) fund is a mix of stocks, bonds, and ETFs. To understand if your 401(k) fund is too costly for you, you might want to check out the expense ratio (ER) of the fund. ER is a good way to understand how much of your money you are paying to invest in a stock or bond through a 401(k) plan. A high ER could mean high fees. As per Investopedia, the average ER stood at 1 percent, which is $2,000 in fees every year for a $200,000 401(k) account. 

What is more worrying is that a TD Ameritrade survey estimated that 37 percent don’t know that 401(k) fees exist at all. Although there isn’t much you could do to change the overall fees charged by your 401(k) plan provider, you could try to invest in low-fee funds and stocks to minimize your effective 401(k) ER. 

A Robo-Advisor That Follows Fiduciary Standards

A robo-advisor called Blooom offers to manage 401(k) and IRAs. They are backed by an experienced team of advisors that follows fiduciary standards, which requires them to recommend the best investment picks in line with your financial aspirations.

Their AI-based robo-advisor uses mega repositories of market information and your input to offer a hands-off investing experience. Their robo-advisor is capable of making investment decisions, monitoring your investments, and investing in low-fee stocks and ETFs that could lower the fees you pay for investing in a 401(k) account. 

Their fee calculator estimates that if you open a 401(k) account and contribute $10,000 annually in a fund with a 1 percent ER for 30 years with 8 percent returns, you could lose an estimated $154,281 in fees alone. This is more than the average 401(k) reported by Vanguard, which stood at $129,157.

In addition, Blooom’s services include access to fiduciary financial advisors over live chat and even video consultation at a fraction of the cost charged by in-house advisors.

Blooom’s Financial Consulting package includes:

– one-on-one access to a financial advisor
– financial insights
– automated trade assistance
– strategies that could help you stay within your 401(k) asset allocation while saving on fees

After creating a free Blooom account, you may link your 401(k) through their 256-bit encrypted platform. After that, their proprietary technology will offer detailed analysis on how your 401(k) could look with low-fee stocks and bonds that are favored to grow over time. If you are intrigued by the results, you may also enroll in their package with access to a financial advisor for only $33 a month – way lower than in-house advisor fees that could go beyond thousands of dollars.