Index Based Investment Management Services

Why Blue Ocean 401(k)?

Blue Ocean 401(k) is a service of Blue Ocean Portfolios, LLC, an SEC Registered Investment Advisor. Blue Ocean 401(k) assumes a true fiduciary position with an employer's 401(k) plan. As a result, every decision is made in the interests of the participants. Since we do not sell securities, insurance contracts, or mutual funds there are no conflicts of interest and there is no compensation bias created by revenue sharing, 12b-1 fees, or commissions. The following pages describe some key elements that you should keep in mind regarding your 401(k) plan.

Fees Matter

To illustrate this point, take the hypothetical situation of employees Joe and Sally. In this hypothetical situation, Joe and Sally start contributing $5,000 per year to their 401(k) account starting at age 25. Each employee contributes for 40 years (until they turn 65) and both employees earn 8% per year on their investments. The only difference in their 401(k) plan is the fees they pay. Joe pays 1.2% per year in fees while Sally pays 0.2% - a mere 1% difference. Yet this 1% difference will have a significant impact over the long run (in this case, 40 years).

401k Balance

401k Bar Graph

The 1% difference in fees resulted in Sally having over $300,000 more than Joe over the 40 years of contributions to these two 401(k) accounts. Ultimately, the higher your plan fees, the more drag you put on the investment performance resulting in lower balances to supplement retirement income. Understanding the impact of fees and expenses on your 401(k) is paramount. Here is a list of fees that your plan could be paying:

  • Investment Management Fees
  • Record Keeping Fees
  • Consulting & Financial Advisory Fees
  • Custodial/Trustee Services
  • Customer Service Fees
  • Wrap Fees
  • Loan Origination Fees
  • Front-End Loads
  • Back End Loads/Redemption Fee
  • Deferred Sales Charge
  • 12b-1 Fee
  • Portfolio Turnover Fees
  • Revenue Sharing Fees

 

Tax Advantaged Billing Options

Why would a company pay administrative and advisory fees out of tax deferred 401(k) plan balances and lose the advantage of writing off these legitimate business expenses? Millions of dollars of administrative, advisory, and participant education fees are needlessly accrued against the tax deferred balances inside the profit sharing and 401(k) plans. This is because the conventional 401k providers depend on revenue sharing, 12b-1 fees, and commissions from the active managed mutual funds that the plan holds. With Blue Ocean 401(k), Plan Sponsors have the option to be invoiced directly for these ancillary fees thereby getting a tax write off for legitimate business expenses that are passed up when the plan is billed instead. The net after tax impact is much lower fees inside the 401(k) plan and legitimate expense deductions for the plan sponsor.

"The mutual fund industry is now the world's largest skimming operation – a $7 trillion trough from which fund managers, brokers, and other insiders are steadily siphoning off an excessive slice of the nation's household, college and retirement savings."

-Former US Sen. Peter G. Fitzgerald (R-IL)
US Congressional Hearing, 2003

 

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