Are These Fees Unreasonable? – Part 2 of 3 – Inv. Management Fees

This week in our continuing series entitled “Are These Fees Unreasonable?” we address Investment Management Fees. (For last week’s post, see Are These Fees Unreasonable? – Part 1 of 3 – Inv. Advisory Services)

To recap, FRA PlanTools offers a Benchmarking Report through its web based PlanTools Risk Management System. The report benchmarks the fees paid by a retirement plan for the services rendered against other plans of similar size by plan assets or participant count using a proprietary, independent and objective database.

As a service to the industry for the purpose of starting or continuing the conversation about fees, we are publishing our internal data for the 95th percentile of fees entered into our system for (1) Investment Advisory Services, (2) Investment Management Fees, and (3) Recordkeeping Fees. What this means is that 95% of the retirement plans in our system pay at or less than the amounts found in the charts below. The data was pulled from our system on June 30, 2013.

What is challenging about benchmarking Investment Management Fees, and admittedly makes a chart below by definition incomplete, is properly taking revenue sharing into consideration. Revenue sharing is addressed in different ways by different plans (i.e. no revenue sharing at all, reimbursement to participants, crediting to ERISA accounts, offsets, etc…) There is no single right answer when it comes to revenue sharing. At a minimum,  plan fiduciaries must understand the amount of revenue sharing, who is paying it, who is receiving it, and why they are receiving it. It is perfectly acceptable to have revenue sharing pay for necessary services, as long as the total compensation paid to any service provider is reasonable and the plan fiduciary actually negotiates its receipt.

What makes this an especially challenging task is that mutual fund complexes negotiate different revenue sharing amounts with different platforms. They may pay 35 bps to one, but only 25 bps to others. It is our position that it is consistent with prudent behavior by a fiduciary to engage in a process to compare the revenue sharing available from a plan’s fund lineup across different platforms. This is necessary to make sure that if a plan uses investment options with revenue sharing, it is maximizing the benefit to the plan participants.

To our knowledge, a module contained in our PlanTools Risk Management System is the only product in the industry that can perform this comparison automatically through a web based solution. To date, we have revenue sharing information from over 20 different platforms. By way of example, I used the solution to create the following chart that was included in a written fee reasonableness opinion I provided to an advisor for one of their plans based on the fund lineup:


As you can see, our data suggests that the plan may be able to increase the revenue sharing for the benefit of the plan with the same plan lineup by either changing platforms or negotiating for additional revenue sharing.

We will finish out the series next Thursday, October 3, when we publish 95th percentile charts for Recordkeeping Fees.

Click here to download the infographic in PDF form: FRA PlanTools – Are These Fees Unreasonable – Part 2 – Inv Mgmt Fees.

FRA PlanTools - Are These Fees Unreasonable - Part 2 - Inv Mgmt Fees


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