401k Fee Disclosure: A Bloomberg Primetime Special
Two weeks ago, Bloomberg had a prime time special on 401(k) fees, specifically those hidden in the fine print. It was a powerful show, as it demonstrated how difficult it is for professionals, much less participants, to make sense of the fees being charged to numerous plans. Most of those highlighted were plans provided by insurance companies with which we are all familiar. With 408(b)2 regulations being on the doorstep of this industry, this is going to make for a very interesting spectacle when service providers (all of us) are going to be asked to provide full disclosure of the fees charged in writing. An advisor we work with put it best, saying, “If I cannot sleep at night based on what I am charging, as well as those fees charged by the provider(s) I am recommending, then don’t sell it.”
Intro
In May, I attended the fi360 National Conference, a must-attend for those wanting to be/remain on the front end of the curve. For the second time, I saw Fred Reish speak, the first time being at PlanSponsor’s Plan Designs conference in ’07 in Chicago. However, this time, Fred was pretty excited, as speaking to an audience that I would assume to be 85%-95% RIAs, said this to be one of the biggest “game changers” in the industry, potentially even bigger than the mighty PPA itself. The reality being that those who have lived “fat and happy” without the knowledge of their plan sponsor clients and their constituents, it is going to be an awkward moment when that phone call comes…”Hi XXX, I am filling out our 5500, and need to know what you were paid on our plan….$50,000!!!, but you were out here twice….OK, well, talk to you later…Dial tone….”
I will be the first to admit that once learning about plan sponsor demands, demographics, etc., it is not always cut and dry as far as what is a “reasonable” fee and what is not. We learned this firsthand last year, when, after witnessing the questionable motives and intentions of some plans’ key trustees, and realizing their expectations of the market and their accounts were not necessarily realistic or prudent, we were forced to fire them. Fortunately, it has been our experience that most plan sponsors are reasonable, and thus, their expectations of service are as well. Therefore, they should be able to be charged fees that reflect as much. It all seems reasonable in my simple little mind. As ERISA states, it is reasonable fees for reasonable service…something that can only be ascertained by a prudent process to see if this is true.
Back to the point. When you get a few minutes and need a break, take the opportunity to watch each of the three segments following. As a plan sponsor, please know that one of the biggest “light bulb moments” of my career came when I realized that a “Retirement Plan Advisor” is a wholly different silo than “Financial Advisor.” If you are working with the “friend” of a key executive that is not a specialist, take his/her advice with a grain of salt. There has never been a more important time to make sure your advisor is a specialist. There are millions of dollars at risk, and following the LaRue decision, any of your participants can bring suit toward the plan’s trustees.
I have added the YouTube segments for easy viewing…enjoy…
Part I
Part II
Part III