Expert: Allen - 11/6/2009

Question
I have been a volunteer on AllExperts for many years, but now I am on the recieving end.  Thanks for your help.

I am trying to set up a Safe Harbor 401(k) plan with individual accounts for my small business of 7 employees.  I have been in touch with a plan administrator who can set up the program, but she tells me I must also work with an investment advisor who will provide required education to the employees once a year.  The two advisors I have contacted both work for investment firms and seem only able to offer investment products with 1-1.5% expense ratios through their own organizations (UBS and Morgan Stanley).  I am used to paying 0.2% expense ratios on my SEP/IRA at Vanguard, so I am not sure why such high expense ratios are necessary for a 401(k).  Do I have an option other than using these high-expense firms?  Many thanks!

Answer
Once you involve an investment advisor he or she will want to be paid for the time involved. And 1-1.5% as a total fee is reasonable. The only way to get lower is to deal directly with the financial institution. Vanguard will no longer allow directed investment accounts in a profit sharing plan. I would try Fidelity and T Rowe Price and see if they can give you what you need. You may have to limit your investment choices to index funds to keep the fee down. Schwab is also a possibility; however, fees will probably be higher than with Fidelity and T Rowe Price..

If in the end you need to use an investment advisor make certain that the 1-1.5% includes all investment charges.