Amy Ouellette is the head of operations at Betterment for Business, a technology-led 401(k) provider that aims to deliver better retirement outcomes and personalized advice.
As a physician, you’ve made a career out of improving the well-being of your patients. Make sure you’re setting your practice and yourself up with the tools needed to look after your own financial wellbeing.
What are my plan fees, and are they too high?
It’s critical to understand how fees are structured in your practice’s 401(k) plan, because high fees can erode your retirement savings. The impact of fees was the first thing that Deborah Manjoney, MD, owner of the Wisconsin Vein Center & Medispa, reviewed when she was rethinking her practice’s current 401(k) plan.
“The whole point of offering a 401(k) is so people can have money that grows into retirement-but I noticed that there were a lot of people in my practice whose accounts were only growing by their deferral rates with no real increase in value,” she says. “When I realized it was because fees were eating away any account growth, I took on all the expenses I could as an owner, but it was necessary to look into other options.”
Untangling what fees you’re paying is easier said than done. Many fees in the retirement industry are not transparent, so it’s important to understand who is responsible for what and how that cost will change over time as your savings grow. There is no such thing as a free 401(k); someone is paying fees and the cost may just be buried inside the funds in which you are invested.
It’s also important to consider how the fees are charged. Some plans have flat fee structures-where the practice is charged based on the number of participants in the plan. Or they may be asset-based, where the charges are based on the total dollar amount invested. There is no one-size-fits-all answer for which one is better for your practice, so be sure to consider what your fees look like today compared to what they might look like two years from now, and also consider any anticipated growth in headcount or assets. The financial adviser responsible for the plan can be a valuable resource when figuring out what works best for your practice, but be sure that that person is acting in your best interest.
Doctors take the Hippocratic Oath to do no harm-but there is no same standard for financial advisers. If a financial adviser is a fiduciary, they are bound to act only in your best interests and give advice that directly benefits you, rather than guide you to take actions that lead to higher profits for them. Fortunately, the Department of Labor’s fiduciary rule-the first clauses of which went into effect in June of this year-mandates that any financial professionals who work with retirement plans or give retirement planning advice be fiduciaries and disclose any conflicts of interest and clearly outline fees and commissions. The rule is not yet fully in effect, however, and there’s still the chance it will be delayed or modified.
Practices that offer 401(k)s are already bound by those same standards to make sure that the plan offered is designed with the participants’ best interests in mind-so make sure that your 401(k) provider and financial adviser make the same pledge.
Following an evidence-based approach to patient care is prudent, as is applying time-tested investment techniques informed by well-conducted research. While there are many paths toward a good savings strategy, there are some strategies that are proven to maximize a plan’s return on investment. Take auto-enrollment, for example: a Vanguard study showed that making enrollment in a 401(k) an opt-out instead of an opt-in process doubled the number of people who saved for retirement-42% of those with voluntary enrollment use their 401(k)s, as compared to 91% of those who are auto-enrolled. Eight in 10 study participants in auto-enrollment plans also increased their contributions over time-a very good statistic, when you consider that the biggest factor of a successful retirement strategy is the actual amount of money put aside. There are similar arguments to be made in favor of other features, such as auto-escalation, rebalancing and investing in index funds.
When it comes to investing, ask yourself whether you’re acting according to conventional wisdom, or according to what has been proven to be effective.
There are few to-do lists longer than a doctor’s. And no matter how much research exists in its favor, if implementing auto-enrollment isn’t an easy process, very few plans will go for it, especially if the person administering the practice’s plan is responsible for other things.
The best plans help make decisions easy because they provide the advice and context needed to make the right decisions under the right circumstances. Manjoney looked for an automated plan that offered both computer-generated advice based on a variety of personal factors and human financial advisers to ensure that everyone participating in the plan would be on track.
“I think an automated approach has as much, if not more, data at its disposal to guide people of any age and investment type to choose the right kind of investments. An important factor in choosing a plan was the capability to show information from all of your investments in one place to get a holistic view of your financial health,” says Manjoney.
A good plan will make the right savings strategies available to plan participants. In contrast, a well-designed plan will make taking advantage of those features painless and efficient and help maximize the tax benefits of making those investments in the first place.
As a physician, you’ve made a career out of improving the well-being of your patients. Make sure you’re setting your practice and yourself up with the tools needed to look after your own financial well-being, too.