If you roll your company retirement plan over with your plan provider, what can really cost you is adding premium services. Fidelity and Schwab market ongoing investment advice. Vanguard recently launched a pilot program to do the same. At Schwab you’ll pay as much as 0.9% of your assets on top of fund fees. Fidelity’s Portfolio Advisory Service (PAS), highlighted at the company’s rollover website, charges as much as 1.19% a year, plus the costs of underlying investments, which Fidelity estimates run 0.5% to 0.77%, depending on your stock and bond mix. Ten percent of the money that rolls out of Fidelity 401(k)s goes into this advice program, the company reports.
The Fidelity phone and branch reps have an incentive to get you to sign up for advice. When you open a Fidelity IRA and put the money in cash, the rep receives a payment equal to 0.06% of your balance, according to Fidelity. When you pick a target-date fund, that bonus jumps to 0.08%. For PAS, annuities, or a referral to an adviser, it is 0.12%. Fidelity says the different payouts are tied to complexity, not to how lucrative the products are. “When I start to get into financial planning, I am spending more time with you. We think it’s appropriate,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity.
Maybe, but adding a thick layer of annual fees to your IRA can cut the chances that your money will last (see "Do I need a financial adviser to manage my IRA rollover" next).
Take advice if you need it. Managing your retirement investments and calculating withdrawals aren’t as easy as filling in a box to save 10% of your paycheck was. Advice can pay off. In a study Vanguard found that 401(k) investment-management programs can improve performance by about one percentage point a year by optimizing the mix of stocks and bonds. If asset-allocation help is all you’re after, buy a target-date fund with low fees and an allocation that suits your appetite for risk (use these model portfolios as a guide).
Roughly half of 401(k)s offer over-the-phone investment advice, Aon Hewitt reports. One of the most popular providers is from Financial Engines. Available even after you retire, its Income+ service helps you figure out how much you can spend and recommends a stock and bond mix for 0.6% a year on top of fund fees.
Shop locally. As long as you have at least $250,000 to invest—a typical minimum—see what a local financial planner charges. That face-to-face help may be less or no more than what you’d pay for a fund investment advice program. By the end of 2015, Vanguard’s Personal Advisor Services, which costs 0.3% plus costs of underlying investments, should be widely available.
Pay for advice once. If all you need is guidance at the starting gate, you can hire an adviser by the hour instead of spending 1% to 2% a year. You might pay $800 to $1,500 for a one-time plan.