Practical Applications of Quantifying the Long-Term Impact of Asset under Management Fees on Retiree Income and Inheritances

In Quantifying the Long-Term Impact of Asset under Management Fees on Retiree Income and Inheritances, from the Fall 2023 issue of The Journal of Retirement, James Mahaney of Mavericus Retirement Services, LLC, finds that financial advisors with fiduciary status generally must refrain from advising their retiree clients to shift assets from company 401(k) plans into IRAs that would increase the advisors' fees based on assets under management (AUM). Mahaney finds that an annual advisory fee of 1% of AUM produces an average reduction of 15.38% in a retiree's annual income and an average reduction of 23.4% in inheritance amounts. For fee levels of 1.25% and 1.50% of AUM, the average reductions in annual income are 19.23% and 22.44%, respectively, and the corresponding average reductions in inheritance amounts are 28.01%, or 33.15%, respectively. These findings are important as many financial advisors are moving away from commission-based practices to AUM fee-based practices, which can result in retirees paying higher fees.