While retail investment management fees have compressed over the years, that may belie the fact that investors are incurring other non-fee costs, such as tax drag, low relative returns and reduced public benefits, according to a new study by United Income (name and email required). United Income, which launched an automated advice platform in September, analyzed 62 retirement investment funds and planning strategies, as well as over 26,000 potential combinations of future market returns. They found that more than three-fourths of retirement products have low relative prices, but also expose investors to “costs” outside the stated management fee. These “hidden costs” include things like oversimplifications of risk preferences and a misalignment with investor profiles, failure to take into account an investor’s other assets or optimizing for individual tax situations, among others. “Tax bills, for example, can unnecessarily increase when investment products and wealth management services fail to anticipate and plan in a tax optimal manner for non-incremental spending shocks, such as long-term care,” the report says. The authors conclude that lowering non-fee costs (via tax optimization and precise risk management profiling) would generate seven times more wealth for a retiree when compared to reducing their investment fees by 100 basis points.
Health Firm Partners with DailyVest for HSA Investing
WEX Health, a tech platform provider for managing healthcare finances mostly via workplace plans, has partnered with DailyVest, an investment performance and reporting tech company for plan sponsors and 401(k) participants, to bring better investment reporting tools to participants in workplace Health Savings Accounts. Tax-advantaged HSAs are considered an underutilized retirement savings vehicle, and have grown in popularity. According to WEX Health, the number of HSA accounts surpassed 21 million from June 2016 to June 2017, and hold about $42.7 billion in assets, while investment assets were up 44 percent, to $6.8 billion.
What Do Investors Want? A Personal Connection
You often hear about a lack of trust in the financial services industry. But over half (56 percent) of Americans say their trust in advisors would increase if they communicated with them on a personal level, according to a new survey by the Million Dollar Round Table. Fifty-four percent say they would trust financial professionals more who had several years of work experience, while 35 percent would have more trust in those who are members of an industry association. The study was conducted online by the Harris Poll, among over 2,000 U.S. adults, ages 18 and older, 700 of which have an advisor. On average, those who work with an advisor pay $2,694 per year for their services.
