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JP Morgan New York 529 Plan Disclosure Details

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Wallis is a mom who spent 10+ years at Goldman Sachs as a banker and investor. She founded AboveBoard as a "safe harbor" where people are treated with integrity and can make big decisions with ease and clarity. AboveBoard's interactive Parents' Financial Guide helps you make the right decisions for your family.

Delving into the detail of JPMorgan’s New York 529 plan not-clearly disclosed expenses:

While looking at the Expense Tables in JPMorgan’s Disclosure Booklet, I read the 8 tiny footnotes required to explain this table.

Footnote 4 caught my eye. I’ve bolded the sentences I found eye-catching. I’ll translate them below. (Feel free to scroll past this unless you, like me, enjoy financial disclosure footnotes.) 

The total operating expense ratio measures the annual operating expenses of an Underlying Fund as a percentage of its average daily net assets. Operating expenses for each Underlying Fund include investment advisory fees, administration, any applicable shareholder servicing fees, and other expenses paid to affiliates and non-affiliates of JPMorgan, SSgA FM or SSBT. The total operating expense ratios upon which the Estimated Underlying Fund Expenses are based do not include any applicable acquired fund fees, and the Estimated Underlying Fund Expenses would be higher if they were included. Acquired fund fees and expenses are expenses that may be incurred indirectly by an Underlying Fund through its ownership of shares in other investment companies, including affiliated money market funds, other mutual funds, exchange-traded funds and business development companies. The impact of acquired fund fees and expenses is included in the total returns of an Underlying Fund, but these fees and expenses are not a direct cost of an Underlying Fund and are not used to calculate an Underlying Fund’s net asset value per share. 

My translation:

“Hey actually, there are some additional fees you’ll bear if you invest in this product, we didn’t tell you about them in that “expense table” above. We will tell you they’re greater than zero, but we’re not gonna say how much they could be, what they have been historically, or any detail that could allow you to estimate. Just know they’re there.  Look, you’ve been informed.” 

My translation:

I’m not even going to try to translate this because it didn’t make clear sense to me either. The idea that fees could be included in the total return but not affect the net asset value (“NAV”, meaning the value of each share) seemed ludicrous: net asset value is what a share is worth. Total return is how that share changes in value. NAV and total return are inextricably linked. 

Then I realized the footnote didn’t say “does not affect” it said “are not used to calculate”.  I’m unclear on why this distinction matters – ultimately, the investor bears the cost. How JPMorgan did its internal fund accounting is beside the point. Choosing to include this statement results in disclosure that – in my opinion – is confusing, even to a sophisticated investor.

I called JPMorgan to inquire about this. One of their financial advisors listened patiently (to his credit) as I walked through an example of how I’d be charged if I opened an account. He confirmed my understanding was correct: 

There are indeed additional, undisclosed fees that have and can continue to affect (= decrease) account performance, but those fees are never clearly disclosed to the investor. 

Shocked, I followed up in writing with another JPMorgan financial advisor, providing a clear, numerical example. 24 hours later, he came back: yep, that’s right, sorry it took so long, just wanted to confirm that with our back office.

WHAT?!

This is ridiculous. 

This also explains how your investment performance might trail even further behind what you’d expect based on “investment performance minus fees” – there are other fees that subtly erode the value of your savings…you just can’t “see” them directly.