Planning for retirement is expensive. The average two-income American family pays as much as $155,000 in 401k fees. And, even more shockingly, perhaps, most people have no idea how much they're spending. Seven in 10 plan participants believe they pay nothing at all, according to an AARP survey.
Fees on 401k accounts alone are worth a whopping $35 billion a year--which explains why the industry is not exactly jumping out of its skin to change how things work. For one, fee structures on retirement accounts remain notoriously hazy (unless you like going line-by-line through each long prospectus). The industry has also fought proposals from the Obama Administration for brokers and salesmen (aka "financial advisers") to take on more fiduciary responsibility (that is, act more in your interests). At the moment, 85% of advisers have no incentive to give you the best deal.
The lack of transparency and good information around retirement planning does, though, offer an opportunity for a new Israeli startup. FeeX--which calls itself the "Robin Hood of Fees"--has a plan to take some of the fat out from the 401K boondoggle and return cash to hard-working people. It doesn't want to stop at retirement accounts, either. FeeX also sees unnecessary expenses in mortgages, credit cards, and checking accounts, which together produce annual fees worth $500 to $600 billion.
"The issue we're trying to solve is the asymmetry in the financial market. They know how much it costs, and we don't. They know what we are paying, and we do not," explains FeeX's co-founder Yoav Zurel. "We believe that crowdsourcing is the cure for that asymmetry."
By "crowdsourcing," Yurel means creating a giant database of constantly updated information gleaned from users--a sort of financial Wikipedia. FeeX's idea is to gather many users of financial products together and collect their data in aggregate form for the public good. By getting information directly--rather than relying on institutions or the government--it believes it can show where fees are inflated, and how people might get a better deal.
Users can sign up at FeeX.com, and link their 401k account to the site. FeeX then immediately rates them on its "Sucker Meter" which determines if the fees on the account are "great," "not so good," or outright foolish. Then, it will compare those fees with those of others who have similar incomes and savings objectives and suggest ways to pay less. For example, you may be invested in a particular share class that's expensive compared to the crowd. FeeX will advise you either to seek a different class within the fund, or go to another institution offering a similar option at a lower price.
FeeX launched in Israel in May, and has signed up 8,200 people to date. Zurel says users have saved $2 million overall so far, or about $244 per person. U.S. residents can sign up for an alpha version currently; FeeX plans a full launch here early next year.
Taking on the might of the financial industry may seem like a tough task (to say the least). But FeeX does have a few things going for it. One, it is decently funded. Blumberg Capital chipped in with $3 million in early stage capital in August. Two, there are lot of people pissed off with banks and there is an increasing comfort with startups in the sector. And, third, FeeX is co-founded by Uri Levine, who started the "social traffic" platform Waze, which Google just acquired for $1.1 billion. FeeX hopes to take on financial fees the same way it's taken on traffic: Using crowd-power to break through complexity and a problem of unequal information. As Yurel says, the issue with fees isn't that the answer isn't out there; it's that everyone only has a "small piece of the puzzle."
One barrier to better financial transparency is that people don't like to share truly private information (even the high fees they are paying). So, Zurel is keen stress that FeeX users share their accounts on a "read" basis only, and completely anonymously. He says FeeX wants to be a genuinely impartial guide to the market: it won't take referral fees when it recommends another product or bank, for example.
After 401(k) accounts, FeeX wants to move on to Individual Retirement Accounts (IRAs), mortgages, credit cards, and other products. Zurel notes that banks currently make 61% of their checking account revenue from overdraft and insufficient funds fees. FeeX could alert people to how much we're paying, how much other people paying, and what we might do about it, he says.
"We're currently at a unique point in time when people are realizing that relying on the wisdom of the crowd can actually bring better results than acting all alone," Zurel says. "That is the big story that comes out with Waze. And, people are seeing that we can break the market asymmetry of fees, too, if we all act together."
[Image via Shutterstock]