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).

It sounds like an odd arrangement, but it's 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. Many firms are reluctant to disclose these soft-dollar arrangements and consider it proprietary information.

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.

Record-keeping is not a profitable enterprise. A typical 401(k) record-keeper may spend between $100 - $150 per year, per participant on record-keeping and administration. This includes the daily valuation, internet access, 800 numbers and quarterly statements that most of us have come to take for granted.

In reality, very few employers with 1,000 participants are willing to pay $100,000 to $150,000 per year in administrative fees. Instead, employers routinely benefit from the revenue sharing provided by the plan's investments and pay only a small portion, if any, of the administrative costs of the plan.

Most employers hire record-keepers without investigating the revenue sharing arrangements and with little thought to questions like: Are other investments available that may pay slightly less revenue to the vendor but have significantly better performance? What amount of revenue is reasonable for my vendor to make in light of the services provided?

We understand the numbers behind the scenes, and we help our clients quantify the revenue generated by their plan. We put you in control of the investment selection and fee process.

Did you know?

• When your plan doubles in size it typically doubles your vendor's revenue.
• Vendors can often be persuaded to offer cheaper share classes of the investments as the plan's asset base grows - driving down costs for participants and enhancing their retirement.
• Hard dollar costs billed to the employer can often be reduced or eliminated for plans with average participant account balances of $30,000 or more.
• Some vendors are willing to credit back excess revenue to the employer and plan participants.
• It is possible to get an accurate estimate of revenue sharing dollars even when the vendor chooses not to disclose it.

Revenue Sharing articles:

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