If you thought the mutual fund scandal would end with your regular fund account, you were wrong!
Most Americans have significant dollars in a 401(k) plan. Most 401(k) plans contain mutual funds. Like other investments, most 401(k) plans are sold to employers from mutual fund companies, brokerage firms, insurance companies, brokers, insurance agents, financial planners, etc. You can probably already hear this train comin'…yep…you're right…these friendly folks find it very convenient to make sure the average participant in a 401(k) plan has no idea what they are paying. And while your employer is legally obligated to keep a close watch on the total fees associated with your 401(k) plan, the majority have not been paying close attention. Of course, you, the employee can't do much about it because you are locked into the options that your employer has picked.
The good news is this is about to change. Thanks to people like FundPolice, Elliot Spitzer and John Bogle, the SEC is finally paying some attention.
If you understand the 12 Deadly Sins of Mutual funds it should come as no surprise to find out that there are a variety of "revenue sharing" arrangements that take place between the various parties on your 401(k) plan. What is revenue sharing? It could be any or all of the following, which means someone may be siphoning money from the funds used in your 401k plan:
The mutual fund, insurance company or money manager pays an initial or ongoing fee:
Back to the agent who sold the plan.
Back to the employer sponsor of the plan.
Back to the company that provides administrative services for the plan, who also charges the plan a separate fee for these administrative services.
To the consulting firm that was, get this, paid a separate fee by the employer to provide "independent advice" to the employer sponsor of the plan.
Another sham is this:
The company hires a consulting firm who is paid a fee to provide "independent advice" to the employer sponsor of the plan. The consulting firm is also "hired" by certain money management firms. Those "certain" money management firms then are by some "coincidence" recommended to various employers above other money managers who have not "paid their bounty."
What can you do? Force your employer to review your 401(k) plan and inform employees the total disclosed and undisclosed expenses associated with the plan.
Below are linksto a variety of good sources dealing with the next big scandal in the financial services industry, that all the people getting their skids greased hope you never read.
