Following a review of mutual funds in qualified plans and charitable trusts, Raymond James sent a note to branch managers that some clients may be due a rebate based on the break points part of the funds’ prospectuses.
The proactive measures may have been spurred by an $8 million FINRA fine last June of a major wire house based on the same issue. That action resulted in $24.4 million in restitution on top of $65 million that had already been repaid.
While the rebates will affect a small percentage of accounts and are expected to be relatively small, the actions by Raymond James highlight an interesting quandary that both record keepers and plan advisors face as client plans grow. Discounts as accounts grow are clearer for mutual funds than for qualified plans; record keepers have pricing formulas for plans based on size and profitability, offering different share classes. Many providers are not proactive as plans grow, forcing companies to constantly renegotiate or threaten to leave through an RFP process. In recent litigation, courts have been critical of plan sponsors not negotiating for more advantageous share classes.
But what about plan advisors, especially those who receive asset-based fees? If an advisor charges a $25 million plan 10 BPs when initially engaged, should they proactively adjust that fee if the plan grows? Some advisors have moved to a fixed fee that is adjusted for the services provided, not as assets increase.
