US plan sponsors struggle with managed account costs, while Canadian investors face high advisor fees
Plan sponsors in the United States increasingly recognize the benefits of personalized retirement investments, yet widespread access to managed accounts remains limited, primarily due to cost concerns.
This issue is not unique to the US; Canadian retirement savers also face challenges related to investment fees, which can significantly impact their retirement savings.
In the US, managed accounts often come with high fees, typically exceeding 25 basis points, which discourages many plan sponsors from offering them.
A survey by PGIM DC Solutions found that 70 percent of plan sponsors would consider offering managed accounts as an opt-in option if fees were reduced to 10 basis points or less.
Similarly, 63 percent expressed interest in making managed accounts the default investment at this lower cost.
David Blanchett, managing director and head of retirement research at PGIM DC Solutions, anticipates that future managed account providers will include asset managers capable of offering lower-cost solutions.
He suggests that managed accounts should be positioned as a competing option to target-date funds by utilizing a broader range of participant data beyond just age.
While the US focuses on managed accounts, Canadian retirement savers face their own challenges with investment fees. High fees can significantly erode retirement savings over time.
For instance, according to Money Sense, a 1 percent decrease in fees over a typical 30-year investing horizon could result in 27 to 29 percent more money in one's retirement savings, assuming a 7 to 8 percent return in a tax-sheltered account.
In Canada, financial advisor fees can vary widely. Account management fees can be as low as 0.5 percent for investment accounts with a value near $1m, while smaller accounts may pay between 2 to 3 percent in annual fees.
Over time, these fees can substantially reduce the growth of retirement savings.
Strategies for Minimizing Fees
To mitigate the impact of high fees, according to Canadian Pension Plan, Canadian investors can consider several strategies:
- Compare fees: Review and compare the fees and expense ratios of different investment options within your retirement plan. Opting for lower-fee options can help preserve more of your savings.
- Consolidate accounts: If you have multiple retirement accounts, consolidating them can reduce administrative and transaction fees.
- Stay informed: Regularly review and understand the fees associated with your retirement plan. Staying informed about any changes can help you make cost-effective decisions.
- Seek professional Advice: Consulting with a financial advisor can provide personalized guidance on minimizing fees and maximizing retirement savings.
By proactively managing and minimizing investment fees, Canadian retirement savers can enhance their financial security and ensure a more comfortable retirement.
