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Just as birds protect their eggs from predators, when you're saving for retirement, you have to do the same. One of the moments when nest eggs are most vulnerable is a job change. That's when some financial advisors pounce, charging big-time fees. For our series Your Money and Your Life, NPR's Chris Arnold has more.
CHRIS ARNOLD, BYLINE: Each year, Americans spend billions of dollars in fees when they roll over their retirement accounts. And those fees can be pretty sneaky and hard to see.
ELIZABETH MERRY: I am absolutely mortified about this.
ARNOLD: That's Elizabeth Merry. She's 49 years old. And like many Americans, she's worked a bunch of different jobs. Actually, right after college, she drove a dump truck.
MERRY: When I married my first husband, we started a small trucking company. It was a great experience, but it didn't really start me out on really great financial footing.
ARNOLD: Now, 30 years later, Merry's a marketing manager at a technology company. And she's saved up $150,000 in a 401(k) there. At the end of the year, though, she's leaving that job, and so she was thinking about rolling over that money into an IRA - that's an individual retirement account - and using the help of her financial adviser with Ameriprise Financial to do that. She pays him about $1,000 a year to manage her money.
MERRY: I asked him if there's any other - any associated fees for doing this. And the response that I got, verbatim, is there are no transfer fees or other tax consequences since we will be doing a direct rollover. So no mention of fees or loads or anything.
ARNOLD: But it turns out that Merry already had rolled over about $50,000 from some other old 401(k)s at prior jobs, and she'd used this same adviser. And she didn't think she'd paid any fees back then, so we said, let's take a look. Turns out her adviser had put her into mutual funds with so-called load fees of 5.75 percent. Researchers we spoke to said you should never pay a load fee and especially nothing that high. In her case, Merry got hit with about $2,300 in load fees. And she says she had no idea that she had paid that.
MERRY: The amount that I rolled over wasn't that huge of an amount, but that was really, you know, some blood sweat and tears that I had put into that money. And I lost almost 6 percent on some of that stuff besides the annual fee that I was paying this guy.
ARNOLD: And if her adviser did the same thing with the larger 401(k) she was thinking of rolling over, the fee would be upwards of $7,500. The financial adviser did not return calls requesting an interview, though Merry said that he called her, confirmed that she had paid those fees and was very angry that she was doing an interview with NPR. We spoke to her right after that call.
MERRY: He called me this morning and was irate and yelling. He was very condescending, very rude.
ARNOLD: In an email, the adviser had no comment on that and declined to discuss Merry's case. But he said he's, quote, "confident" that he provides his clients with, quote, "thoughtful advice and thorough disclosures," end quote. Ameriprise corporate also says the company provides extensive disclosures about fees.
But then why didn't Elizabeth Merry know that she was being charged those big fees? Kent Smetters is an economist at the Wharton School, and he studies retirement accounts. He says it's very hard for most people to see a lot of these fees.
KENT SMETTERS: It's very difficult. And one reason why is these companies - all the major ones do this. They try to make it very unclear yet satisfy their very low legal minimum obligations.
ARNOLD: In the end, after Elizabeth Merry realized that she'd been paying these big fees, her adviser said he would now like to move her into low-cost index funds. And she says she might invest in low-cost index funds, but first, she's going to shop around for a different adviser. Chris Arnold, NPR News.
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