Investors have a strong desire to be good stewards of their retirement funds. This often includes seeking out professionals for financial advice. For the retirement plan sponsor, the Department of Labor (DOL) is helping by creating fee disclosure rules and requirements. A few years ago, the DOL mandated fee disclosure rule (404(a)5) in an effort to ensure plan sponsors are able to determine if the fees for services rendered are “reasonable.”
NPR ran a story this morning about excessive 401k fees. See link here. If I could add to this article, I would suggest plan sponsors review their plan fees and services at least every couple of years, if not more often through a fee benchmarking process. The generated report should give plan sponsors a general idea of how their plan compares to others of similar size. Benchmarking has other benefits as well. Not only will this help to uncover fees and what services are being provided, but also some service providers are willing to re-price their services to lower fees.
While many thought the disclosure rules were a bright spot in a dark corner, we feel that further disclosure and transparency is warranted in this industry. Since not all advisors are the same, we are thankful that the DOL has re-proposed a Fiduciary Rule which seeks to make anyone giving investment advice to 401k/retirement plans (and also IRAs) to act in the account holder’s best interest. For RIAs like Parsec, it is business as usual. However, broker-dealers may have a bit more difficulty with this rule, as they operate under something called a suitability standard. While not to debate the virtues of the fiduciary standard versus the suitability standard, we do feel that greater disclosure is a good thing and will ultimately drive costs down even further.
Neal Nolan, CFP®
Director of ERISA, Financial Advisor