SOURCE: MarketRiders

MarketRiders

March 30, 2010 12:05 ET

MarketRiders Study Reveals Half of Yearly IRA Contributions Go to Pay Investment Fees

Free Study Shows Investors How to Calculate and Plug Mutual Fund and Advisory Fees

DANVILLE, CA--(Marketwire - March 30, 2010) -  With tax time fast approaching, 46.1 million American households are preparing to make their yearly IRA contributions. What most don't know or consider is that nearly half of that annual IRA contribution goes to pay for hidden fees inside mutual funds and for advisory services. MarketRiders, an online retirement portfolio management service, reports this data and what investors can do to avoid these costs in a free downloadable report, "Aggregate Mutual Fund Fee Report: US IRA Accounts 2009."

Using information from several studies conducted by the non-profit Investment Company Institute (ICI), the MarketRiders research reveals:

  • Americans had $4.1 trillion invested in IRA accounts on September 30, 2009
  • $1.88 trillion of these IRA funds are invested in equity, bond, hybrid and money market mutual funds.
  • Mutual fund management fees, 12b-1 fund marketing fees and sales loads total about $24.18 billion in fees each year -- an average of 1.3 percent. 
  • In 2008 an estimated $77.18 billion was contributed to IRAs so the yearly mutual fund fees are an astounding 30.5 percent of total contributions

"These fees are a hidden tax that people have no idea they are paying. And studies prove over and over that investors get nothing in return except lost wealth," says Mitch Tuchman, CEO, MarketRiders. "Today people are working hard to scrounge up $4000 to contribute to their IRA and have no idea how much of this pays fees. The annual fees are hard to find, hidden in fine print and deliberately obfuscated by mutual fund providers and brokers."

In addition to the 1.3 percent for assorted mutual fund fees, 12b-1 fees and sales loads, MarketRiders estimates that one-third of investors are also paying an average of one percent or more for asset management fees to their wealth advisor or broker to place them into mutual funds and other investments. 

"Our study shows that on average, the IRA account that is managed by an advisor or broker costs investors a total of 2 percent or more with all the fees," says Tuchman. "As people pay into their IRAs with one hand, a huge portion of that contribution is going right out to investment professionals, mutual funds and others in fees. While investors believe they are funding their retirements, they are also giving half or more of their contributions away every year to Wall Street."

Consider that according to the ICI, the mean value of an IRA account is $109,400, per household. With the average of 2 percent in various fees and expenses, the cost averages $2180 every year -- over 50 percent of one's yearly contribution. Ironically, these fees grow as the IRA grows so by the time this individual's IRA is $200,000, the entire yearly contribution of $4000 or $5000 goes to pay fees.

"The investment advisor does no more work to manage a $25,000 IRA than he does to manage a $250,000 IRA, but yet, the customer is charged 10x more because of the asset-based fee model. So the closer a person gets to retirement with a growing IRA, his fees keep growing. It's like driving and having someone press harder and harder on the brakes the closer you get to your destination," said Tuchman. 

While it is difficult to find all of the fees, investors can find them if they know where to look. MarketRiders suggests this approach:

  1. Management fees. If you own mutual funds, you are paying fees for managing your money. Look each fund up on Yahoo or Morningstar and find the "management fee." Multiply it by the amount you own of the fund. 
  2. Marketing fees. Then look for 12b-1 marketing fees and sales loads. Upfront loads are charged the first year and 12b-1 fees are charged every year. Multiply these by the amount you own of the fund. 
  3. Asset management fees. Find the broker or agent who handles your account on your brokerage statement and call them. Ask if there are fees for overseeing your entire account, and if so, what they were in actual dollars for 2009, and how they were calculated. Were you charged on your stocks, bonds, mutual funds, cash?

This free report from MarketRiders, "Aggregate Mutual Fund Fee Report: US IRA Accounts 2009," is available as a PDF download by clicking here (http://www.marketriders.com/pub/1/marketriders%20fee%20report%20on%20stationary.pdf). 

MarketRiders is an online retirement portfolio manager that gives investors tools to manage their IRAs with low-cost ETFs, helping reduce fees by 90 percent so investors end up with 33-50 percent more money at retirement. MarketRiders software watches the portfolio 24x7 and tells investors when it's time to rebalance. For more information, visit www.marketriders.com.

Source: Reports from the Investment Company Institute
"The Role of IRAs in U.S. Households' Saving for Retirement, 2009" -- January 2010 "The U.S. Retirement Market, Third Quarter 2009" -- February 2010 
"2009 Investment Company Fact Book"

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