Why tough times in market should make investors take tough look at investment fees

It is enough to make any investor nauseous.

The daily up-and-down of the stock market, as inflation drives federal authorities to continually raise interest rates, has made for a very unpredictable, unpleasant investment environment. We are all wondering: When will this horrible ride stop?

Inflation is now at the highest level in 40 years, with an entire generation never experiencing such a spike in basic consumer costs, from meat to fruit to women’s dresses. World events aren’t making things any easier, as the pandemic in China continues to plague the supply chain, the atrocities in Ukraine are plastered on the front page each day and there is terrible instability in energy costs.

Yes, things are not fun.

While it is impossible for us to control these global swings of economic uncertainty, there are small ways in which we can control our personal investments, as the market swings like the Buccaneer ride at the local fair.

Let me explain.

Retirement companies, which run 401(k), 403(b), 457(b) and other popular plans, are under tremendous pressure to increase fees, despite the fact that account values have reduced for many. We may actually see — for the first time in 20 years — fee hikes, with firms arguing that the current inflation rate of 8.5% is perfect justification to charge more money.

Here’s some of their reasoning:

  • It is costing more to manage mutual funds with labor shortages and salaries on the rise;
  • As a direct result of the global supply chain shortages, prices have soared for technology and equipment to serve customers. Many record-keepers need to factor in higher costs for the regular maintenance of the retirement plan;
  • Insurance premiums for errors and omissions coverages are increasing;
  • Mainframe and cloud computing, mobile devices and security technology costs have risen.

Unfortunately, I do not see this trend changing anytime soon. I expect higher retirement expenses into 2023 and can only surmise this will also bring higher fees to those taking part in these plans and trying to save for the later years in retirement.

But, unlike inflation and global strife, I believe investors have the power to control the fees they pay. It will require some homework, with a list of questions for their retirement plan administrator. They need to understand the underlying cost drivers, asking for a full review of investment expenses and share class choices, as well as requesting full fee disclosures and year-end fund fee reviews.

Moreover, I urge investors to also carefully read the documentation that is periodically shared, which reveals record-keeping and mutual fund fee disclosures. As inflationary pressures continue in the third and fourth quarters of 2022, as anticipated, investors should be prepared for notices of “fee adjustments.”

For those investors who struggle under what could be an avalanche of paper, I urge them to contact a financial adviser who can cut through the clutter and find out exactly what a retirement plan is costing. Moreover, the adviser can provide perspective if the fees are fair and competitive, or if it is time to find another company to manage a retirement plan.

It is at least one way in which investors can control the unpredictability of the new normal.

Andrew Bluestone is a certified financial planner based in Ramsey.