Jump to content


Photo

Programs With Asset Wrap Fee


  • Please log in to reply
5 replies to this topic

#1 saab93

saab93
  • Members
  • 24 posts

Posted 20 April 2017 - 06:02 AM

How does everyone feel about the programs which have an asset wrap fee?  

I have CalSTRS Pension2 because their advertising is what initially pushed me to begin 403b contributions.  The fund options are good.  The program is also fantastic for beginners because the 0.25% asset wrap fee means a beginner's fees are tiny.  Because Voya does the record keeping, the website and mobile app are top notch too. 

 

However, I worry about a time when a participant might have 100k, $250 fees, 200k, $500 fees, 1 million, $2500 fees.  These upper end scenarios seem like a steep price to start low.  I believe many would pay a bit more early to avoid $2500 a year for potentially decades later. 

 

I plan to stick with it and if the worry gets the best of me once I hit 50-100k, switch to a flat based fee provider.  In the meantime, I hope a cap might come along, I would probably feel comfortable if they capped the asset fee at $250 per year considering the institutional shares they offer make up for some of that. 

 

In this world when we push for the lowest fees possible, these asset fees bug me a bit even though I am happy to pay my fair share into a program. 

 

 

 

 

 



#2 tony

tony
  • Members
  • 3,741 posts

Posted 21 April 2017 - 09:41 AM

Hey Saab93

 

Sorry its taken so long to answer your question. I think wrap fees should be avoided if at all possible. I know a lot depends on the plans you have available to you.  Below is an excerpt from Investopedia. I don't consider a .25% fee tiny although they can be much more than that.. And as you pointed out the more you save the more you pay.

 

 

The Disadvantage of Paying from Your Account Balance 

Paying wrap fees from your retirement account means that the fee reduces your account balance. This, in turn, reduces the amount of assets that continue to accrue earnings on a tax-deferred basis, or a tax-free basis in the case of Roth IRAs. Overtime, this reduction in the balance can have significant impact on the overall performance of your retirement-account investments. 

For example, say you have a wrap account that earns a return of 10% and charges a fee of 1%. By paying your wrap fees out of your retirement-account balance, you decrease the return on your investment by 8% over a five-year period. The chart below illustrates this decrease. It shows the yearly difference in return over a five-year period for an investor who starts with an IRA balance of $1 million, and on which he or she gets a return of 10% and pays a 1% wrap fee per year. You can see how dramatically the 1% fee affects the yearly return.

Read more: The Rap On Wrap Fees For Retirement Accounts http://www.investope...p#ixzz4etXpQKyy 
Follow us: Investopedia on Facebook



#3 whyme

whyme
  • Members
  • 250 posts

Posted 21 April 2017 - 08:47 PM

I've had the same issue (plus some others) with CalStrs Pension2, but for many California teachers, it is the best available option, and it is FAR better to use it than than not to invest at all.  There is always some added fee attached to a 403b account.  By the time your balance gets really large, you are likely to have hit 59 1/2 years of age, at which point you can roll the money to an IRA at Vanguard.

 

My 2¢: if your income permits, max out a Roth IRA at Vanguard.  Beyond that, determine whether you have a less expensive 403b option (that'd probably be Fidelity or Vanguard), and if you don't, go all in on Pension2, until you are 59 1/2.



#4 saab93

saab93
  • Members
  • 24 posts

Posted 22 April 2017 - 01:27 AM

I've had the same issue (plus some others) with CalStrs Pension2, but for many California teachers, it is the best available option, and it is FAR better to use it than than not to invest at all.  There is always some added fee attached to a 403b account.  By the time your balance gets really large, you are likely to have hit 59 1/2 years of age, at which point you can roll the money to an IRA at Vanguard.

 

My 2¢: if your income permits, max out a Roth IRA at Vanguard.  Beyond that, determine whether you have a less expensive 403b option (that'd probably be Fidelity or Vanguard), and if you don't, go all in on Pension2, until you are 59 1/2.

 

 

 

Thanks!  What do you do as you keep working after 59 1/2, keep rolling it out of Pension2 once a year?  Furthermore, what about the protections offered on a 403b account versus a regular IRA?  Most do not worry about that?

I do some to Roth IRA at Vanguard, but I worry of the possibility of moving to Washington state with no state income tax (probably won't but it is possible), so I only do about 1/2 of my max. 

 

I thought about continuing with Pension2 until I hit the $50,000 mark in 2-3 years at which time move to CTA that has a flat $80 fee (I know people do not like CTA much, but the plan is pretty good with good Vanguard funds).  My concern there is the 1 week or so the money would be out of the market with a check being sent to CTA.  

 

I would just go with Fidelity now they are approved at my TPA, but they have an extra requirement of an agreement signed with the individual school.  My district uses the TPA to have a hands off approach and they have no interest in doing an agreement beyond the TPA. 

 

Thanks!  You both gave me more to think about and also made me feel reassured that I am not wrong to consider the long term consequences of the asset fee.  I agree it is not tiny, but it is tiny when you have a small balance, which is what CalSTRS pushes if you ask them. 

I believe it is a tough spot for them because take Fidelity for example can have a $25 fee because they figure at least some people will buy the more expensive funds.  Pension2 has to rely on the fees to cover the entire program.  



#5 whyme

whyme
  • Members
  • 250 posts

Posted 22 April 2017 - 02:16 PM

Hello again, saab93.

 

I've recently passed the 59 1/2 mark, so I can tell you what I've been doing; your mileage may vary, etc..

 

Part of my balance remains at Pension 2, because I find the stable value fund there an attractive option for the fixed income part of my portfolio.  Stable value is not available outside of an employer plan.  So, for now, I've rolled part of my Pension2 balance to my IRA at Vanguard, left part in the stable value fund, and continue to contribute.  I will reevaluate every year or so, and will probably roll all of it to Vanguard at some point, depending on whether the stable value fund remains an attractive enough option to put up with the fees and the complication of multiple accounts. 

 

Yes, you can continue to contribute and roll the balance out every year if you want (assuming you've passed the 59 1/2 milestone).  At least I think so--I've just done one rollover, but I don't recall seeing anything that limits how often you roll money out.

 

RE: 403b protections, I don't know what you are referring to--is there a reason to feel less secure in a vanguard IRA?  Are you talking about ERISA rules that protect the account from things like bankruptcy?

 

As to the various expenses and the time out of the market that occurs with a rollover (obnoxiously, they send the check to you, then you have to forward it): I think you have to make peace with the fact that some of that comes with any 403b or 457 package.  I, at least, have never found a way to avoid those costs and bureaucratic hiccups entirely.  Ultimately, your retirement can survive a $50 fee here or there, or a couple of weeks when your funds are uninvested.  The real issue, as you know, is the ongoing, compounding costs that have the potential to seriously undermine your nest egg over time.  

 

Pension 2 is a relatively good deal, among the best on offer for most California teachers and I encourage you to contribute heartilly as the tax benefits greatly outweigh the costs, in my view.   I don't know what the fee structure is with CTA, but I'd look into that carefully before making a switch. 



#6 BeetleBounce

BeetleBounce
  • Members
  • 5 posts

Posted 30 April 2017 - 10:32 AM

Welcome to 403b investing! Employees, employers, simply need to continue pounding the table, fighting, demonstrating, encouraging, yelling, bargaining for the wrap fees to lower as the industry wakes up and cuts fees. Vanguard, as we all know, has changed the industry. However, there is still room for continued change to get these wrap fees lowered (not to mention all the fund options in typical 403b and 401 programs to get their ER fees lowered!)

 

Rant over.

 

TIAA has a wrap fee of .17 for one of us, and the other spouse has a voluntary 403b VALIC account which her state has negotiated quite well to be .18.

 

Would we prefer not to have to pay those wrap fees? Sure. But c'est la vie...

 

The underlying funds in each - Vanguard - means the wrap fee bumps up the overall ER we are paying. Since it is all pre-tax deduction (and one includes an employer match), it beats some alternatives. That doesn't mean we are not going to continue to fight for lower fees. ;-}

 

403b of one Spouse 
TIAA plan which comes with their .17 ER wrap annual charge, plus the underlying funds ER expense as listed:

Vanguard 500 Index Fund Admiral 40% (ER .05)
Vanguard Extended Market Index Fund Admiral 15% (ER .09)
Vanguard Total International Stock Index Fund Admiral 15% (ER .12)
Vanguard Total Bond Market Index Fund Admiral 30% (ER .06)

403b Voluntary Plan AIG/VALIC which includes an administrative wrap ER fee of .18 added to each fund as listed here:

Vanguard Institutional Index Fund 40% (ER .22)
Vanguard Total International Stock Index Fund Admiral 20% (ER .30)
Vanguard Total Bond Market Index Fund Admiral 40% (ER .25)