What is Fee Reasonableness? >

Who is Responsible for Determining Fee Reasonableness? >

Reasonable Fees for Plans and IRAs >

What Factors Make up Reasonable Fees? Quality + Service + Value + Extra Credit  >

Tech Solutions for Determining Fee Reasonableness >

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Video: Change is Opportunity >

 

Reasonable Fees Under the DOL's Conflict of Interest Guidance

What is Fee Reasonableness?

“Fee Reasonableness” is the obligation of Financial Advisors and potentially Broker/Dealers to explain or justify their fees, based on the level of Quality, Service, Value AND Extra Credit (QSVE) items they offer to their individual retirement account (IRA) and 401(k) plan clients.

There has been and will continue to be, heightened scrutiny on plan fees. Like most fees, there’s more to it than just the price. And what about IRA holders? How can their fees be deemed reasonable and who determines this?

For a deeper dive into fee reasonableness, below is a whitepaper written for Fiduciary Benchmarks by Fred Reish and Bruce Ashton of Drinker Biddle & Reath.

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Who is Responsible for Determining Fee Reasonableness?

The short answer is, that it depends on the retirement vehicle. For 401(k)’s, it is the responsibility of the plan fiduciary likely with assistance from their service providers.

For IRA’s, fee reasonableness is the responsibility of the Broker/Dealer and/or Advisor. In both cases, you can argue that either litigation or the Fiduciary Rule have heightened the obligation. Most RIAs are likely doing much of the required fiduciary oversight already, so the changes they will be required to make to manage their liability will be minimal.

Advisors have long been obligated by FINRA Regulatory Notice 13-45, issued in December 2013, which holds firms to their responsibilities when recommending a rollover or transfer of assets from an IRA to a qualified plan and how IRA’s are marketed. To more clearly understand the roles of each associated party in determining reasonable fees, Fred Reish and Bruce Ashton of Drinker Biddle & Reath has prepared the following whitepaper.

Download Whitepaper >

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Reasonable Fees for Plans and IRAs

This is the second of a four-part article series prepared by Drinker Biddle for Fiduciary Benchmarks. In this article, Fred Reish and Bruce Ashton, industry experts on all things related to the Fiduciary Rule, discuss the nuances and implications around the fact that service providers, including Advisors, may receive no more than reasonable compensation for their services to ERISA-governed retirement plans and IRAs.

As discussed in the article, “throughout the retirement planning process, the burden is on the service provider to prove, using market data, that the compensation is not unreasonable. How this is done so that it is compliant with the new fiduciary regulations is a big concern for Broker/Dealers, as well as other forms of service providers.”

The value of services has to be based on pricing in an open and transparent market where competition effectively sets the price. This article goes into more detail about the “Elements of Reasonableness” such as the quality, service, and value that are provided. Additionally, it discusses the methods in which sources of data are procured efficiently and cost-effectively as part of a benchmarking service.

We encourage you to read this new article in its entirety.

Download Whitepaper >

 

What Factors Make Up Reasonable Fees? Quality + Service + Value + Extra Credit.

diceYou get what you pay for. If an Advisor is charging more than the median fee but is providing exceptional quality, service and value then the fees may be reasonable. For instance, if a plan serviced by a Financial Advisor maintains high participation rates, healthy deferral rates and is structured to generate strong retirement outcomes, then their level of Quality, Service, Value and Extra Credit may very well support a higher fee being charged.
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When conducting a benchmarking evaluation, we put FEES on one side and QSVE on the other.

       Q is the QUALITY of the provider,
       S stands for the SERVICES it is delivering,
       V for the VALUE it supplies, and then
       E is for EXTRA CREDIT it might be giving.

It works the same way in the IRA world. There are variables outside a flat fee analysis that determine if an Advisor is acting in the best interest of their clients. The following article from the July/August edition of PLANADVISER Magazine featuring Tom Kmak, CEO of Fiduciary Benchmarks discusses Quality + Service + Value + Extra Credit = Fees: The Changing Discussion About Fee Reasonableness.

Download Archived Whitepaper >

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Tech Solutions for Determining Fee Reasonableness

DC Benchmarking Services

Fiduciary Benchmarks provides the industry’s most comprehensive Defined Contribution Plan Benchmarking Suite of Services.

  • All of Fiduciary Benchmarks’ data is obtained directly from the source – the Recordkeepers, TPAs and Advisor/Consultants who service the plans. Our comprehensive, verified data is no older than 90 days when obtained and includes fees, services, support and participant success measures.
  • Fiduciary Benchmarks’ proven method focuses on building apples-to-apples benchmark groups of similar plans by service provider, using high-quality data and providing a balanced assessment of the relationship between value and fees.
  • Our reports are designed to be simple, transparent and practical. The reports provide concise information and actionable intelligence that support sensible decision making. The reports and the process used to review them can be part of a prudent ERISA required review of fee reasonableness.

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IRA Rollover Suite of Services

The IRA Rollover Best Interest Determination Service presents 16 different factors to consider, besides fees—things such as retirement planning issues, investment flexibility issues, how you want to take your money in retirement, annuities versus loans versus bankruptcy issues. While the tool was initially developed to help comply with the DOL Fiduciary Rule, it can also be used to follow FINRA Regulatory Notice 13-45 when recommending rollovers to an IRA. For the vast majority of advisors already working in their clients’ best interest, the tool can help document that their recommendations are in the best interest of their clients. The tool also offers full compliance reporting and workflow oversight.

Also in development is our benchmarking practice for IRAs. We’ll take what we did for Defined Contribution (DC) plans and move it over to the IRA side.

The final service to be rolled out is related to IRA services is an analysis of level fees versus commissions. It will be important for advisors to have a way to show a client a commission versus level fee analysis to help objectively determine which is better.

Fiduciary Benchmark’s Suite of IRA services can significantly reduce the risk of missing and complying with the implementation deadlines for a very affordable cost. The service also provides the opportunity to maintain revenue while acting in the best interest of the client.

Read the Press Release >

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Video: Change is Opportunity

“Change is Opportunity”. In this video interview, Craig Rosenthal, SVP of Fiduciary Benchmarks discusses with PLANADVISER® talks about how the Fiduciary Rule may create new opportunities for both Advisors, Sponsors and ultimately better retirement outcomes for investors.

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