Understanding asset based charges

A friend of mine has started a 401k program for her employees recently and she says she is paying a number of fees pertaining to it. Among these, she mentions something called the asset based charges. What are these and is there any way I can avoid these charges when I set up my 401k account?- Gina Williams, Fort Lauderdale- starting up a pet care service and veterinary service.

Gina, many 401k plan providers do charge different types of fees when they set and manage your plan. Some of them are quite transparent and upfront about these and they let you know exactly what fees they charge and why. There are others who may be advertising no fee or low fees yet charging these and many other fees, and you end up paying them without even knowing that you are doing so. A good way to avoid hidden fees like these is to opt for a small business 401k plan provider like https://www.401keasy.com/, where the focus is on client needs and client satisfaction. Another advantage of going with https://www.401keasy.com/ is their easily customizable plans, their excellent support and comprehensive mutual funds offerings. Now, let’s give you a quick understanding of what these asset based charges are.

Asset based fees are charged against all of the assets you have in your 401k. They come out of the employee account balance. Usually, they are charged as a specific percentage  of the account balance, debited annually. For instance, your 401k provider may charge your 1% as asset based charges meaning that $1 out of every $100 in account balance goes to him in the form of this fee. Clearly, you can see that the provider is making money when your asset based charges are high.

So what are these fees typically used for? Well, you may think that any fee charged by your 401k provider goes toward money management. But with asset based charges, this is not all that this money is used for. They may also be paying for financial advisors, third party administrators record maintenance, investment management and more. A mutual fund that is charging asset based fees may keep a part of the money collected for its money management, forward a part to financial advisors, earmark another part for other parties to be paid through the record keeper and so on.

The best thing for you to do is check thoroughly to ensure that your 401k provider specifically guarantees ‘no asset based’ charge, if you are keen to avoid these costs.