Have you been introduced to Matt Hutcheson? Fee transparency is his calling card, so if you haven’t reached out to him, you should. Those of us that operate in the World you are referring to are delighted to embrace your forward thinking. Keep it up!

Your comments are spot on. Its going to be up to the FEE ONLY Advisor community to properly articulate to plan sponsors WHY their 401k plan is broken, and how it can be fixed. The amount of sponsors I speak to that dont know who their recordkeeper is, how much their hard and soft dollar costs amount to over time, and who they are to turn to for education is astounding. Those in our business need to be able to provide medicine to sick 401k plans. The hard part being the patient (sponsor) does not even know that they have underlying conditions that will have devasting negative results over time.

Thank you for your comments on the post, and I have forwarded this post to Asst. Secretary Borzi.

I will attempt to answer your questions as best I can.

1) An annual audit by an independent, unrelated third party would hopefully evaluate the provider’s investment process and management methodology, disclosure processes, contracts (plan sponsor and employee), IT infrastructure, and most importantly the revenue and partner agreements they have it place…a good start at least. The key is not just to look at the functional delivery of the ongoing advice, but also the potential conflicts that exist in their revenue and agreements in place with industry partners. If I were an auditor, I would want to make sure the agreements with providers/advisors/brokers do not show any language that speaks to required asset allocations or necessity to use or avoid any specific investments available on the retirement plans menus that are available to participants to invest in for themselves. If that type of language exists, with any requirements toward specific proprietary investments or revenue sharing arrangements the provider has with various investment companies, then a conflict of interest could be “hardwired” into the offering. I hope that makes sense.

2) That’s the million dollar question. How do you charge for advice, and more importantly, is it a profitable enterprise? I think the approach of charging an asset-based fee in the micro market makes sense, as it is simple to understand and has been in practice for RIAs for years. When you enter the 100+ employee market and especially the 1,000+ employee market, then a process must be present/solution to deliver ongoing advice to participant. As you know, fiduciary advice needs to be ongoing, so their needs to be a process for delivering it, and face-to-face simply doesn’t work for the ongoing portion of the advice relationship. The economics of advice and ongoing nature are actually going to be some of the posts in this series, so I will leave that to go into more detail.

Michael – Thank you for the comment, and I too hope the regs reflect a true ERISA fiduciary standard, and not an SEC standard.

How does a practice that makes so much common sense not reach a tipping point? Perhaps we are on the verge and hopefully the DOL’s new advice regs will add some wind to our fiduciary sails.

Two questions:

1) Regarding the audits: Since the advisers would not be handling client funds, what’s being audited? The performance records?
2) The second question is one I haven’t been able to find an answer for myself: Should advisers charge asset-based fees or a flat rate? The former case makes sense for larger accounts since there might be more work and definitely more liability associated with those accounts. The latter makes sense for smaller accounts, but can advisers then earn enough to pay their own normal operating expenses? Or, does the adviser charge the plan directly (either asset-based or (larger) flat fee) so the adviser has no vested interest in favoring larger accounts over smaller accounts?