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Life After Fee Disclosure

Now that the DOL’s fee disclosure regulations have been in effect for about a year, the conventional wisdom is that despite the costs of gearing up for the new required participant notices, implementing new procedures, sending out the notices and following up to gauge their effectiveness, for the most part the participant notices were ignored.

Sam Brandwein of Morgan Stanley Wealth Management is taking a longer view in judging the effectiveness of the rules. When looked at from the perspective of whether plan sponsors and participants have changed their behavior, “the rules will be a game-changer – eventually,” Brandwein told a workshop audience at the 2013 NAPA/ASPPA 401(k) Summit in Las Vegas this week.

Brandwein made his case for taking a longer view by citing the impact of state seat belt laws and the 1990 federal nutrition labeling law. “Both took time to change behavior – and in both cases, change resulted from education efforts, not from the law itself,” he said. That’s why it takes time to see a meaningful impact, he said.

For plan sponsors, Brandwein noted, the major barriers in implementing the requirements were confusion (especially over electronic disclosure), liability issues, determining what’s “reasonable,” benchmarking non-traditional investments like stable value products, and increased numbers of in-service withdrawal requests -- as well as the costs involved, of course.

For advisors, Brandwein believes, it all leads back to the critical need to demonstrate value to their clients. He singled out five things that advisors must do to show their value:
• Benchmarking – and not just costs.
• Helping plan sponsors renegotiate with providers to gain more favorable terms.
• Leveraging the plan sponsor’s time.
• Providing training, both to participants and to the investment committee.
• Assisting with plan design changes to make the plan more cost-efficient.

Brandwein co-presented the workshop with Fred Reish of Drinker Biddle. Look for a post on what Reish had to say about the risks of litigation facing plan sponsors and players in the retirement market in a future post.