How do Investment Fees Work in a Plan?

Setting Investment Fees

There are two places you can enter investment or advisory fees in the software:

• Default Fees
• Plan-Level Fees

To set fee defaults, go to the “Settings” section, found in the horizontal bar at the top of the screen (next to “Reports”). Then choose "Default Values" and open the “Fees & Expenses” accordion section.

Fee levels entered here will automatically transfer to any new household plans that are created. However, this will not alter the fees set for any existing plan. (Furthermore, any copied plan will inherit the original plan's fees.)

Plan-level fees can be found and set in the “Advanced Plan Settings” section, accessed from the “three dots menu” in the upper right of the screen.

Open the “Fees & Expenses” accordion section at the bottom to access this plan's fees and expenses.

Types of Fees

The “Overall Fees” at the top of the Fees & Expenses section apply to the entire portfolio. This is a good place to include an overall AUM fee/management fee. You can also include a flat dollar fee here, which will show up in the plan as an expense that is adjusted for inflation over time.

The Investment Fees section allows you to enter asset-based fees for each asset class. Some asset classes may typically carry higher fees (and thus lower net-of-fee returns) than would otherwise be experienced.

Very Low or Negative Returns are due to Fees

If you see very low average expected returns for a plan (lower than you expect based on the capital market assumptions used in the plan), this is typically due to very high fees in the plan. Most often, this is due to a mistake (a typo) in putting in the fees. In other cases, it may be that you entered asset allocation numbers in the fee inputs section, instead of fees. For example, we have seen plans with a 30% fee for US Aggregate bonds and a 70% fee for US All Cap Stock, and no other fees.

If a plan's Retirement Paycheck or Spending Capacity seems very low compared to the resources available to the household, this may also be due to fees or a mistake in how you have entered fees. That's because the plan's portfolio will not be able to support as high a level of withdrawals if it is subject to extremely high fees. Essentially, entering very high fees reduces the expected net-of-fee returns for the plan, and thus also depresses the sustainable withdrawals that the portfolio subject to these fees could support.

Annuity Fees

Fees on annuities, such as variable or fixed index annuities, are specified separately. On the “Other” tab of the annuity's settings, you can specify an annuity's overall fee (such as an M&E fee, i.e., mortality & expense fee or advisory fee) as well as a living benefit fee. The Living Benefit Fee specification will only be available if you have set the annuity to have a living benefit. In Income Lab, living benefit fees are modeled as assessed based on the benefit base of the annuity, rather than the balance of the annuity's investments.