By now you all know how important it is to line your nest eggs with a diversified portfolio, savings plan and smart spending habits. So why give your hard-earned money away to carefully hidden fees and charges?
Many of us will pay 1 percent to 2 percent - sometimes more - in fees for the privilege of investing. And while these fees might sound small and innocent, they're anything but, says Erik Laurence, VP of Marketing and Business Development at FeeX.
First, they're taken as a percent of your entire account balance, each year, year after year.
"Think about that for a moment - a percent or two of - potentially - everything you own," he says. "These fees compound and after 30 years can easily subtract a third or even half from the amount of money you would otherwise retire with."
A study by Demos found the average American family would pay $155,000 over the course of a career in 401(k) fees alone.
"What's worse is that many people that pay these high fees are actually better off in low-cost investments that perform as well or in some cases better," Erik adds.
FeeX wants to help you uncover all those hidden fees so you can reclaim your money. We recently checked in with Erik to learn more about these fees and what we can do about them. Read on to start saving:
Tell us the story behind FeeX...
FeeX started when our co-founder Uri Levine saw he was being charged hundreds of dollars on a credit card balance of only 22 cents. When he called the company, they ended up waiving the charges - but it got Uri thinking that if you don't know what you're paying, you're paying too much.
At the same time, FeeX co-founder and CEO Yoav Zurel saw that the expenses on his parents' retirement funds were going to consume a third of their savings by retirement. FeeX was started as a way to combat the tyranny of excessive and hidden fees - they're everywhere!
How does it work?
FeeX is a free service - all you need to sign up is an email address. Next, you can securely link your 401(k), IRA, 457, 403(b), or brokerage account, and we scan the accounts for fees. Then, if we find similar lower-fee investments, we'll show them to you. The whole process takes three minutes.
How is it that we end up paying such high fees on our investments?
Most of the time we don't even realize how much we're paying. Expense ratios (essentially the cost of operating a mutual fund) get buried in the middle of a fund's prospectus, or investors might not even realize it's a fee at all, let alone one that's tied to your assets and compounds over time.
We can also end up paying high fees for financial advice that's often generic and widely available. Sometimes, the best advice is to avoid high-fee investments, but giving this advice can actually be a conflict of interest for advisors that make their living off of investment fees.
What are the most common hidden fees out there?
The expense ratio is one of the most common fees, and is one of the best hidden. But there are lots of other fees to worry about: wrap fees, AUM fees, front load fees, redemption fees, commissions, account maintenance fees and more.
What have been some of the most outrageous fees you've uncovered over the years?
We've seen mutual funds with expense ratios of more than 3 percent that lose money - that's beyond outrageous! We've seen investment firms promise new clients the world, then go ahead and move them out of low-cost, well-performing funds to higher-cost, poorer-performing funds, and add an AUM fee on top that benefits them not the client.
What should consumers be researching/reading before we invest in order to avoid paying exorbitant fees? How can we be savvier consumers?
Looking out for a fund's expense ratio along with its performance is an easy way to figure out. It's also worth it to research lower-fee index funds or ETFs, which still can perform well without crazy fees tacked on. FeeX has a "manual input" feature that essentially lets you test out funds before you invest in them by creating a hypothetical portfolio, so you can see if there are any similar lower-fee options before you take the plunge.
What are some easy ways consumers can reduce the likelihood that they'll be charged a fee on a service or product?
Communication and negotiation can be key for the fees you've already been charged. A phone call to your bank, credit card company or cable/phone provider can make all the difference when trying to reduce or eliminate something like an excessive or mistakenly charged fee.
And awareness is really the first step to avoiding fees in the first place, which is why, even though finding fees with FeeX isn't necessarily fun - no one likes to see when they've been paying more than they should - it's an important first step to being more aware of fees every day.
Can consumers challenge the fees they have been asked to pay? What are some best practices for confronting a financial institution?
Negotiation is definitely possible! One FeeX user found a fee charged to her account that she thought she had been purposefully avoiding; she called up her savings provider and they refunded it right away. Financial institutions do value their customers, and will go to great lengths to make them happy.
Also, FeeX users have been downloading their results to show to their financial advisor, saying, hey, you've recommended these funds that have alternatives with much lower fees; what's the deal? And that has been opening up a lot of conversations about what an individual investors priorities are - and we think reducing fees is becoming a bigger priority for those saving for retirement.