Imagine a world in which your grocery store sells food at the cost charged by the producer with no markup. The grocery makes its profit by working only with producers who agree to rebate back a portion of their price (e.g., the producer who sells a can of peas to the store for 50 cents rebates 10 cents back to the store when it's sold).  This arrangement might work quite well for the store, but what does it do for the variety and price of the products that the store is willing to put on its shelves?

This scenario is actually the foundation of the record-keeping industry. As much as possible, record-keepers eliminate hard-dollar fees by using soft-dollar relationships where the investments rebate a portion of their fees. This creates a powerful incentive for record-keepers to allow access only to those investments that rebate fees, with performance as a secondary consideration.

As a fiduciary, you have the right - and the responsibility - to understand the fees vendors receive while providing service to your plan. We can help you uncover the hidden fees and learn exactly how much you and your participants are paying.  This work becomes all that more important with the Department of Labor's pending covered service provider (CSP) and participant fee disclosure regulations.

The new world of 408(b)(2) & 404a-5

While it was common for a plan fiduciary to know little of the underlying revenue sharing arrangements in the past, the revised 5500 filing, the soon-to-be enacted CSP disclosure and the participant level fee disclosure have brought this issue to the forefront.  To be sure, even with the full enforcement of the new regulations, loopholes and vagaries will still exist.

You need someone on your side who is well-versed in the practices of the vendor community – and who understands how to represent your best interests.  As individuals who previously worked for the vendor community, and who now represent over $2.3 billion of plan assets (as of 12/31/10), we are that resource.  We understand the numbers behind the scenes, and we put our clients in control of the investment selection, fee negotiation and fee disclosure processes. 

Helpful Links

• Slides and DOL Toolkit of Resources from September 13, 2011 DOL/EBSA Webcast “Transparency of Fees and Expenses for Workers in 401(k)-Type Retirement Plans”.  Free log in required.
• DOL Model Comparative Chart 

Revenue Sharing articles:

• When Investing Meets Revenue Sharing Part 1
• When Investing Meets Revenue Sharing Part 2
• When Investing Meets Revenue Sharing Part 3