Guide to DC Plan and IRA Fee Reasonableness
|What is Fee Reasonableness?|
|Who is Responsible for Determining Fee Reasonableness?|
|Video: Change is Opportunity|
|What Factors Make up Reasonable Fees? Quality + Service + Value|
|Tech Solutions for Fee Reasonableness|
What is Fee Reasonableness?
What is Fee Reasonableness? Simply put, “Fee Reasonableness” is the obligation of Financial Advisors and/or Broker/Dealers to explain or justify their fees based on the level of quality, service and value they charge their individual retirement account (IRA) and 401(k) plan clients. Over the last year and a half, 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.
Who is Responsible for Determining Fee Reasonableness?
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 case, 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. With the new DOL Fiduciary Rule, the requirements for determination of fee reasonableness and best interest determination along with the ramifications for not properly doing so for IRA rollovers is heightened.
To more clearly understand the roles of each associated party in determining reasonable fees, Fred Reish and Bruce Ashton of Drinker Biddle & Reath have prepared the following whitepaper:
“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.
What Factors Make Up Reasonable Fees? Quality + Service + Value.
You 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 and value may very well support a higher fee being charged.
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 discuss Quality + Service + Value = Fees: The Changing Discussion About Fee Reasonableness.
Tech Solutions for Determining Fee Reasonableness
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.
Fiduciary Benchmarks is taking their industry leading Plan Benchmarking solution and leveraging it to solve for the new Fiduciary Rule IRA requirements including Best Interest Determination, Fee Reasonableness and Compliance Workflows.
Join us for a 60-Minute webinar on DC Benchmarking for Fee Reasonableness Determination and learn more about our DC benchmarking report offerings.
Join us for a 60-Minute webinar on Technology Solutions for IRA Fiduciary Rule Compliance and learn more about our solutions to help you solve for the Fiduciary Rule.
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