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401(k): Don't Ignore the Fees

The following commentary is from an investment professional with Clear Harbor Asset Management who is a participant in TheStreet's expert contributor program.

NEW YORK ( TheStreet) -- Interested in learning more about the fees that are coming out of your 401(k) retirement savings account?

The good news is that the Department of Labor is imposing new rules soon requiring Wall Street firms to provide more transparency about the fees they charge employers and their workers on 401(k) accounts.

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The bad news, however, is that it's 2012, and our elected officials are just getting around to requiring some basic transparency on the fees that Wall Street charges employers and workers on 401(k) retirement accounts.

Note this is not about limiting what a 401(k) provider can charge, or any such thing. This is simply about disclosing what a 401(k) provider is charging to its paying customers. It's a little strange that the stewards of retirement accounts for more than 50 million Americans need to have rules imposed on them in order to disclose the full extent of the fees they're charging clients, but apparently that's the world we live in.

Investment professionals need to be compensated for the services they render through fees, but they should be clear and transparent with their customers about those fees. For their part, investors should be wary of a manager that isn't forthright about fees, and they owe it to themselves to always make an effort to stay informed on how much they're paying relative to other options. Fees can have a substantial effect on returns over time.

Fingers in the Pie

There's little doubt that the rise of 401(k) accounts has been a bonanza for the financial industry. The Internal Revenue Service first began allowing workers to contribute their own money to the accounts on a tax-deferred basis in the early 1980's. By 1990, 401(k) plans had about $900 billion in assets, and by 2011, that figure had reached $4.3 trillion.

During that period, the proliferation of 401(k) accounts dramatically increased the amount of stock market risk that was being shouldered by the average U.S. household. Meanwhile, a series of speculative bubbles culminated in the global financial crisis and the notorious government bailouts for major financial institutions like AIG (AIG), Bank of America (BAC) and Citigroup (C), leaving major stock indices with their worst long-term performance in modern memory.
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