• Shannon

Fee Assessment & Plan Benchmarking – 401(k) Fight Club?

Advisors, it’s time to pick up your swords and shields and fight for your clients’ retirement plans!

No, we’re not talking about a possible advisor “Fight Club.” If we were, we’ve already broken the first rule of Fight Club (don’t talk about Fight Club.)

We’re talking about fighting against the encroaching fees, underperforming investments, and inappropriate plan design elements that may be negatively affecting your clients’ qualified retirement plans. 

Spotlight From the Fiduciary Rule

The back and forth in Washington over the fiduciary rule, which was officially implemented on June 9th, has brought a glaring light to one specific area of retirement plans – fees.  If you’re a retirement plan advisor who’s not benchmarking the investments returns for the funds offered in your clients’ qualified retirement plans, or assessing the fees paid by the plans and their participants, you should expect more and more of your plans to be approached and reviewed by other investment advisors. While outside bidding won’t necessarily have a negative effect on the plan, why let another advisor benchmark your clients’ plans first?

Plan Sponsors Need a Fiduciary “Assist”

This bidding process can be a stressful one for both the plan sponsor and the plan’s investment advisor if an outside advisor initiates it. If the plan advisor has not committed to helping the plan sponsor meet their fiduciary duties by assisting them in the review of the fees being paid within the plan and therefore by the plan participants, or the performance of the investments, this can result in the plan sponsor losing faith in the advisor’s abilities or worse, losing the plan to another advisor. 

According to a poll by Fiduciary Benchmarks, key plan sponsor concerns are: 

  • Investment Expenses

  • Administrative Expenses

  • Employee Participation Rat

  • eAverage Deferral Percentage

Benchmarking Resources

Benchmarking your clients’ plans every few years will increase the value that you bring to your clients. It will also produce loyalty, and keep the client more engaged with you. The benchmarking process also allows advisors to address many of the clients’ concerns, and keep their clients’ plans competitively priced! A few resources we suggest to get started: 

  • Start with the plan’s recordkeeper. Many of the recordkeepers on the plans we consult have tools available to help advisors to benchmark their plans. Recordkeeper representatives will walk you through the tools and even pull reports for you!

  • MorningStar Fund Reports – MorningStar lists their favorite and top performing funds, along with those with “red flags” to watch out for. They also offer a wide variety of fund analyst reports for download.

  • Fi360 Prudent Practices – Fi360 offers this tool to advisors specifically to help them get a process for selecting and monitoring funds in place. 

  • Call your local TPA – Your TPA will review the plan design elements, and spot any key areas that need improvement. If the plan sponsor has mentioned specific concerns about the plan, you and the TPA can come up with a game plan to tackle those issues!

Don’t forget that retirement plans require a team effort to administer. Get everyone on board and keep communications open between yourself, the plan sponsor, TPA, and recordkeeper. This simple action will go a long way in keeping plans healthy and competitively priced!

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