The fact that some funds share revenue and some don’t creates a situation in which DC plan participants with the same account balance often pay a varying net amount for record keeping services, Jerry Bramlett notes.
Deeming it an “allocation of participant expense” issue, correcting fee inequity issues like that one continues to baffle many plan sponsors and their advisors, Bramlett writes in his “Inside Investments” column in the current issue of NAPA Net the Magazine.
Bramlett suggests a way to resolve the fee inequity issue: clearly identify what the participant is paying in terms of money management and plan record keeping fees. In short: unbundle the two costs and make sure everyone is paying an equitable amount.
In the larger context, the most straightforward way to evaluate what a retail mutual fund provider should pay is to benchmark their level of revenue sharing against a broad universe of “like funds,” he notes — in other words, is the fund truly a retail fund? “Collective investment trusts may or may not have shareholder (participant) servicing expenses baked into a fund’s expenses ratio, while institutional separate accounts rarely do,” Bramlett observes. The point is that the plan advisor has to question and compare in order to maximize the revenue that the plan and, ultimately, the participant, receives.
“Perhaps those plan sponsors and advisors who just find revenue sharing to be too confusing and difficult to manage should consider eliminating all retail funds from their investment lineups,” Bramlett suggests. With DC providers increasingly offering non-revenue sharing fund lineups, this is becoming a viable option for many plan sponsors, he notes. “There is little doubt that, if no funds in a lineup have built-in shareholder servicing revenue, everything becomes a lot easier for everyone.”
In addition to Bramlett’s regular “Inside Investments” column, the Fall 2015 issue of NAPA Net the Magazine inaugurates NAPA’s lists of the top women advisors in the industry in four separate categories. Judy Ward also discusses the potential pitfalls of managed accounts, while Nevin Adams debuts his new “Polling Places” column, highlighting some readers who shared their experiences with the client firing process. The issue also features insights from contributors Warren Cormier, David Levine, Brian Graff, Don Trone, Steff Chalk, Joseph DeNoyior, Jania Stout and Fred Barstein, along with the debut of columnist Lisa Greenwald Schneider.
To view Bramlett’s column, click here and select “Revenue Sharing: What’s All the Hullaballoo?” And to view a pdf of the full 52-page issue, click here.
