Investing is not free, but the costs vary widely. With due diligence, you may be able to reduce the fees you pay. This article covers:

• Benchmarks for low fees, and the firms that meet these benchmarks.
• Steps you can take that may reduce your fees significantly.
• Ways to find the fees charged by your employer's retirement plan.

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​Benchmarks for Low Fees

Benchmark Levels
The main benchmark for a low-fee account is an overall cost of $4 per $1000 per year, or 0.4%. As detailed below, three good, stable firms meet this standard consistently; three others meet it selectively. It's a challenging benchmark, but doable.

In addition to the overall benchmark, some additional guidelines apply to specific circumstances:

• Advice from a financial planner can be charged hourly or itemized as a flat fee. Regrettably, this best practice is sparsely followed. If there's a benchmark for such fees, it is somewhere between Vanguard's rate of 0.3% for personal advice on accounts over $50,000 and Betterment's rate of 0.15% for automated advisory services on accounts over $100,000. For more information about finding low-cost, high-quality advice, see our article on Finding Advice.
• Fees for employers' 401(k) and 403(b) plans necessarily have additional administrative costs that can make it hard for them to meet the 0.4% benchmark. But if the plan's underlying funds are limited to ones that beat the benchmark, and the employer is willing to pay administrative fees and not pass them on to employees, then the plan overall can do almost as well, perhaps achieving 0.5% or 0.6%.
• Funds that invest in bonds can often achieve a lower benchmark of 0.3% or less.
• International stock funds have higher expenses, and thus a higher benchmark, but the best are able to beat 0.5%.

Benchmark Firms
At able2pay.com we evaluated and rated seven firms on various criteria, including whether their products met the 0.4% benchmark. Regarding their fees, we posed two questions:

• Do they offer all-in-one or balanced funds that allocate across a well diversified portfolio of domestic and international stocks and bonds at or below the 0.4% benchmark?
• Alternatively, if an all-in-one or balanced solution is not available at the benchmark level, could an investor build and manage their own portfolio by selecting funds or investments that would achieve the 0.4% level?

Among firms large enough to be considered stable, three stood out:

• Vanguard is tops overall on fees. (No surprise there.) Every one of Vanguard's balanced, all-in-one, or target-date funds exceeds the benchmark. Many of them cut it in half. Nearly all their individual mutual funds also beat the benchmark, most of them handily. That said, Vanguard is occasionally shaky on some specifics. For example, their only balanced fund designed for tax-efficiency has a fixed allocation of 50% U.S. stocks and 50% municipal bonds. If you want to diversify a tax-aware account internationally or set a target other than 50%, you have to craft your own portfolio and rebalance it yourself. Or you could purchase Vanguard's advisory services for 0.3%, but then your overall costs would be nudging or surpassing the benchmark.
• Betterment builds all-in-one portfolios with fully automated services that use low-cost Exchange Traded Funds (ETFs), many of them from Vanguard. Betterment's lowest fees go to accounts with more than $100,000 invested. These are charged the implicit fees of the ETFs, plus 0.15% for Betterment's services to allocate across funds, re-balance them to the desired targets, and make tax-aware decisions when selling or re-balancing ETF shares. The total cost for large accounts will be in the neighborhood of 0.3%, depending on the specific allocations; it's likely to be just under our benchmark of 0.4% for smaller accounts, or slightly over the benchmark for very small accounts under $10,000. For a taxable account, Betterment's strategy may be more attractive than Vanguard's, because the benchmark level can be attained with  ETFs completely managed by Betterment's excellent, automated methods of allocating investments to fit your goals while minimizing taxable transactions.
• Wealthfront also uses low-fee ETFs, including many from Vanguard. For the first $10,000, Wealthfront charges no fee beyond the underlying ETFs, making them less expensive than Betterment and comparable to Vanguard. As the account size approaches $100,000, Wealthfront's fees are virtually the same as Betterment's, roughly at our benchmark of 0.4% depending on the exact mix of ETFs. Above $100,000, Wealthfront stays at that level, charging 0.25% plus the ETF fees. Much to Wealthftont's credit, they show you the exact cost-breakdown of your individual account, given your allocation of ETFs. For tax-aware accounts, they offer an all-in-one approach that keeps fees virtually at the 0.4% benchmark while automatically maintaining the allocation. Finally, it is worth noting that Wealthfront estimates the fees you will owe them in the coming year, and they hold that amount as a cash balance in your account, rather than investing it until it's due.

Three other firms may be worth considering, provided you are careful about the funds or products you select. These three "runner-ups" all offer many funds and products above the benchmark (sometimes far above), plus a select few that meet the benchmark. At Fidelity, for example, the Freedom Index funds beat the benchmark, but most of their funds don't. Another low-cost option at Fidelity is to use a brokerage account to purchase low-fee, no-commission ETFs from iShares and other firms, if you are willing to do your own rebalancing. At TIAA-CREF, a small number of index funds qualify, and some clients may have access to indexed target-date funds. Many clients, however, will only be afforded higher cost, non-indexed versions of TIAA-CREF's mutual funds. Finally, a Schwab Intelligent Portfolio is similar conceptually to the products from Betterment and Wealthfront, but Schwab's version imposes some hidden (implicit) costs by requiring that an investor hold a non-trivial cash balance in Schwab's commercial bank.

Steps to Reduce Your Fees

Use Index Funds
In any type of account, whether for retirement, college savings, or building wealth, you can limit your fees by investing in index funds. Many good articles explain why index funds are advantageous. Rather than reprise all the arguments here, let's simply consider a typical example. One 403(b) vendor offers an all-in-one fund called a Moderate Allocation Portfolio. The name of the vendor is not important, as many others are similar. Within the Moderate Allocation Portfolio, various individual funds for U.S. and international stocks and bonds have fees ranging from 0.6% to 1.1%. Yet the same vendor offers a few index funds with fees averaging about 0.35%. Using a strategy like the one in our article on Basic Portfolios, one could use the index funds to craft a balanced portfolio and save 0.3% or more per year. Over 25 years, a small different of 0.3% would increase an investor's portfolio by about 8%. That's enough to retire two years earlier, by an oft-cited rule of thumb to withdraw 4% annually.

Consolidate at a Benchmark Firm
An excellent strategy to reduce your fees is to consolidate your accounts at one of the benchmark firms described above. If your firm consistently beats the 0.4% benchmark, you won't have to spend time trying to find the fees of your individual investments.

• Consolidate your IRA and taxable accounts at a low-fee firm. Consult with the new firm about doing so with a direct transfer that avoids tax-consequences.
• Have your college-savings accounts rolled over to a benchmark firm. Be sure to use the firm's indexed funds, if they offer both indexed and non-indexed versions. Use a direct firm-to-firm rollover to avoid tax consequences, and don't do more than one per year for the same beneficiary.
• Variable annuities are products normally to be avoided, because they necessarily have higher administrative fees than comparably invested mutual funds. However, if you already have a variable annuity, and it's not in the retirement plan of your current employer, investigate whether you can transfer it to a lower-fee variable annuity at one of the benchmark firms. Some of them offer this option.

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Rollover to a Benchmark IRA
It is productive in many cases to consolidate retirement accounts by the following steps: 

• If you have 401(k) or 403(b) accounts at previous employers, roll them over to an IRA at a benchmark firm. Before doing so, make sure that your previous employer's contributions are fully vested, and that your specific investments don't have withdrawal penalties.
• If your current employer's 401(k) or 403(b) plan has high fees, consider investing some of your retirement savings in an IRA account at a low-fee firm.​ This can be complicated, unfortunately, as you should first capture matching contributions from your employer, and IRS regulations may limit your IRA options if your income is high. You can find the specifics here.

The Fees of Your 401(k) or 403(b)

Finding the fees of your employer's retirement plan can be difficult. You can try reading the prospectus. Not fun! You'll get the best answer that way, because the facts are there. But they lurk in jargon and fine print. Here are some other ways to do it. 

401(k) Plans
The key idea is to find your employer, not your 401(k) vendor, at a website that publishes data reported by all employers to the U.S. Department of Labor. For example, if your employer is XYZ, Inc., and your 401(k) is held at ABC Investments, you're going to search for the website's ratings of XYZ, Inc. Here's how:

1. Visit the website for BrightScope, a company that aggregates data on employers' 401(k) plans. 
2. On the ratings page, find the name of your employer. 
3. Click on your employer's name (if it's listed), and scroll down to the graphic for Total Plan Cost. 
4. If you see a green bar that says "lowest fees," your employer is among the 15% of all employers offering the lowest fees. In that case, your employer's plan most likely meets our benchmark of fees at or under 0.4% ($4 per $1000 per year), or at least comes close. 

For any rating other than "lowest fees," consider the ideas below in the section "Other Options." 

403(b) Plans
​If you work for a non-profit, a public school district, or a college or university, you may have a 403(b) plan rather than a 401(k). Possibly, your employer's retirement plan is listed in the website described above, for 401(k) plans. It's worth a try. There's also an excellent site specifically for 403(b) plans. It's organized in a very different manner, however. You have to find your 403(b) vendor, not your employer. Here are the steps to follow.

1. Visit the 403bCompare website. Although managed for California school employees, it works great for all states. You can almost certainly find your 403(b) costs at this site, but it will take a few clicks. 
2. Find Browse Vendors on the home page, click on it, and use the alphabet tool to find your 403(b) vendor. For example, if your 403(b) account is at MetLife, use M in the alphabet tool, and click on MetLife.
3. Click on the tab for Product List then on Fees and Charges. Write down the expenses listed under Fees and Charges. You may find some miscellaneous small fees. More important, look for something like an account management fee that's charged every year, quarter, or month. That's where the fees would really mount up. Convert it to an annual figure, if necessary.
4. You're not done yet. Click on Funding Options or Subaccounts. There you will find additional expenses for individual funds or annuities. Add these fees to the others you noted. Be careful how you do this. Suppose you are invested in three funds, and they have fees of 0.6%, 0.8%, and 0.9% respectively. Don't add them all up to 2.3%! You really want a weighted average, depending on how much you invest in each fund. A reasonable estimate is to take the middle value and use that. In the example, the middle value would be 0.8%. Thus, if you had annual fees of 0.5% in step 3 and a middle value of 0.8% in step 4, your estimated total fees would be 0.5% + 0.8% = 1.3% or $13 per $1000 per year.

Other Options
If your total annual fees are much above the benchmark level, consider the ideas presented earlier in this article. Or speak to your employer's HR or Finance department about getting a different vendor. Show them the website you visited. And ask if they have considered any of the benchmark firms. Some employers give employees a choice of vendors, which your HR department could be encourage to do if the employer is currently committed to a single high-cost vendor.