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An individual retirement account can hold just about any type of investment. That suits many investors like having wide-open options, but some find that too much choice is overwhelming. That’s why some investors turn to an adviser to try to sort through the vast universe of funds and figure out what to buy. Unfortunately, that advice can be expensive.

SigFig data shows that investors who work with advisers are almost twice as likely to pay load fees for the mutual funds they own: 37 percent of IRA investors with an adviser pay load fees, compared to 21 percent of investors without an adviser.

A load fee is a fee paid on the purchase of a mutual fund. It is essentially a form of commission — a fee that goes to the adviser you have paid to help you choose a fund. These fees range widely. The average IRA investor pays 0.46 percent in fees on their investments, but 28 percent pay 0.8 percent or more in total fees. That means a substantial number of investors are paying almost double the average in fees. And even small differences in fees can cut thousands of dollars out of your nest egg over the course of your investing lifetime.

Higher fees might be worth it if the pricier funds that advisers recommend outperformed the market. Unfortunately, they typically don’t. Investors who use advisers in their IRAs are paying more, but they aren’t getting more: the median trailing 1-year net return for investors who use advisers is 1.2 percent, and the median return for investors who go it alone is 1.5 percent. Investors who have chosen their own investments are actually doing better than investors who have sought pricey advice. SigFig data has shown this consistently: pricier investments simply don’t perform well enough to justify their fees.

Which Advisers Charge the Most?

SigFig’s analysis shows that some firms are more likely to charge certain types of fees than others. Ameriprise Financial, Edward Jones and American Funds are at least three times as likely as the average firm to charge a sales commission or a type of fund marketing fee known as a 12b-1 fee.

Wherever the fee is coming from, it is hard to justify paying high fees on investments that simply don’t outperform the broader market indices. If your adviser steers you towards expensive funds, it is time to ask a few questions about how they make their money and why they aren’t trying to control one of the only things you can control about your investments’ performance: how much they cost.

If you choose to work with an adviser, it is best to work with someone who is paid on a fee-only basis, or one that charges a small percentage of assets under management, such as a robo-adviser. Fee-only and robo-advisers don’t make commissions from selling you pricey products. Look for advisers who hold themselves to a fiduciary standard, meaning they are legally bound to put your interests ahead of their own. Anyone who isn’t held to this standard can steer you towards investments that are broadly suitable for you, but not necessarily the best, or cheapest, possible option. As SigFig’s data proves, too many investors are already paying the price for bad advice.


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