Due Diligence

For Fiduciaries, Fee Monitoring Under Scrutiny

A big part of being a fiduciary has always been knowing exactly what your clients are paying for their investments, and making sure they’re getting the best deal. It’s called “controlling” and “accounting for” fees. But recent legislative and regulatory moves, combined with a series of lawsuits, mean that more attention is being paid to fees and expense monitoring than ever before.

At the end of May, the House of Representatives passed the American Jobs and Tax Loopholes Act, which would require disclosure of hidden 401(k) fees to retirement plan participants. The Department of Labor has proposed rule 408b2, which says that service providers to DC plans will have to disclose certain things in the written service agreement. Meanwhile, several recent lawsuits concerning plan sponsor fees indicate that the issue is coming under increasing scrutiny: Hecker v. Deere, Braden v. Wal-Mart Stores, Martin v. Caterpillar, and Jones v. Harris.

Fi360, a group that provides consulting to financial advisors on fiduciary issues, conducted a webinar for advisors who are fiduciaries about how to monitor fees on Wednesday. Thankfully, they noted, it’s gotten easier to do so than ever before, because there are so many services today that provide fiduciary benchmarking.

Fiduciaries must monitor fees in three areas: client-level, operational and transactional fees. Once an advisor knows what these fees are, he or she must make sure they are fair and reasonable. “This determination of fair and reasonable does not require that a plan sponsor pick the cheapest fund,” said Rich Lynch, chief operating officer. “The advisor hired does not have to be the cheapest advisor. Fair and reasonable looks at the fees charged, comparing them against services provided.”

To make sure retirement plan fees are as competitive as possible for a particular client, an advisor needs to consider unbundling the fees, and then restructuring the plan to cover only those items that are needed, said Mike Limbacher, Fi360’s tools product associate.

If you’re having trouble getting fee information, how far do you need to go to satisfy that fiduciary requirement to control and account for expenses? There’s no a hard and fast answer, said Limbacher. You need dig deep enough to where you’re comfortable knowing where each penny is going.

For more, check out this story on RegisteredRep.com.

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