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READER POLL: Fee Reviews Are Things to Do

Industry Trends and Research

A recent survey of large plan sponsors suggests a surge in interest in conducting a fee study this year—so, how about the plan sponsor clients of NAPA-Net readers?

Now we all know that actions speak louder than words—and the survey that contained those particular words was dominated by the perspectives of rather large (>$100 million in assets). However, fees, or at least concerns about fees, seem to be a continued focus—of litigators, if not plan sponsors—and, while the year is young, as we (all) near those Q1 reviews, it seemed like a good time to look ahead and get your take on what might (or might not) be coming up.

A clear plurality (though certainly not a majority—35%) of this week’s respondents said that “every single one” of their plan sponsor clients would be undergoing a fee review this year. Roughly 1 in 10 (11%) said more than three-quarters would be, and another 18% indicated that at least half would. On the other hand, about 7% each said either none, or maybe 10%, and the rest put the figure at somewhere between 10% and 25% of their client base.

Those figures notwithstanding, the comments were decidedly in favor of doing so. Here’s a sampling:

Part of our committee meetings is to ensure we’re reviewing and benchmarking fees to ensure both that the client is aware of all fees and that they’re reasonable.

It always comes up.

We don’t leave this up to our plan sponsor clients. Fee reviews wouldn’t necessarily cross their mind. They might ask “what does this plan cost?” but not necessarily tie it to a comprehensive fee analysis.

This is part of our annual service to benchmark advisor and recordkeeper/service provider fees.

Due to COVID, many companies had to change their business models. As a result, many are looking not just looking at fees alone but in conjunction with value of the services being provided and how they are delivered. Websites, employee engagement, employee enrollment, plan design and virtual communications are being looked at more closely. That does not necessarily mean a reduction in fees but what value-added services are available since the company may not have the same level of face to face engagement.

We do a fee review every year with internal benchmarking and we do an external every 3-5 years so it depends where they are in the cycle.

We do a fee analysis for every single client review. So we are always having a discussion about fees.

We are constantly running fee reviews and discussions as well as requesting adjustments as our plans grow in assets so we have not seen a significant uptick in requests.

This an annual agenda topic for our Committees.

Our clients get a fee review or benchmark every 3 years but we talk about fees annually in our meetings.

We do annual fee benchmarking reviews with all of our clients.

It is more of a matter of us presenting and documenting fee reviews. It is rare that our clients proactively/offensively reach out to discuss fees.... unless payroll providers are trying to kick down their door and using high pressure sales tactics that hold them out as fiduciaries when they aren’t (yikes).

I do a fee review on all plans at least annually. A fee benchmarking report is usually conducted at least annually as well.

We review all plan fees with all clients annually. We have an asset-based advisory fee schedule that we use to automatically reduce our fees as the plan grows. We ask for recordkeeper fee reductions every 3-5 years.

All of our clients complete fee benchmarking annually. but our clients are also large plans.

Who and When

And, as you might expect from those comments, for the vast majority of respondents (79%), those reviews would be at theirinstigation (13% said it was about 50/50, 6% weren’t sure in every case, and the rest—well, it wasn’t many, but they indicated the instigation was their client(s).

“We have it built into our model, so as we price new relationships in the market we have a very good sense of where our book ‘should’ be,” explained one reader. “This helps us keep up to date with pricing within our plans, where the market sits for their plan demographics and leads to easy discussions into repricing or full market review.”

As for the “when”: 

53% - Every year.

35% - Every other year.

9% - It varies widely.

2% - Only as part of a comprehensive service review.

1% - It’s actually kind of random.

“We provide total fees every meeting, but full benchmarking or RFP best practice every three years unless something changes- company management, RK gets purchased, major service issue etc., “ commented on reader. “On average it’s every year but it also depends on plan growth,” observed another. 

“If the normal course of business doesn’t kick out a review on its own, we target market pricing every 3 years,” explained another reader. “These tend to occur more naturally in our day to day process so the ‘once every 3 years’ conversation doesn’t come up as much as we would think.” 

Another commented, “Every third year gets a deep dive. Every year to talk about how much everything costs so they did their duty of receiving and reviewing the 408b2 from providers.” 

Still another noted that,“Not every review results in a negotiation with the recordkeeper, but we do review and discuss each year.” 

Another reader noted that, “Typically every 3 years unless the plan is experiencing unusual growth by virtue of new participants, exponential asset growth, M&A, etc.,” and another commented that “We are always benchmarking our plans informally against 5+ providers. I keep an Excel template that automatically calculates based on plan size and # of participants, and included fully bundled and unbundled pricing. It is filed internally and we present the findings formally every third year.”

Other Observations

As always, we got a number of additional thoughts and comments on the subject from readers. Here’s a sampling:

There is definitely a major dichotomy of transparency from the different providers and that needs to change.

Annual fee reviews are an important part of our process.

M&A activity in recordkeepers and TPAs is frustrating for many plan sponsors but opportunities for us if their advisor is not staying on top of that plus pending legal/regulatory changes.

Everyone should do them every year with every plan sponsor client.

We monitor the fees all the time and suggest regular benchmarking. We regularly reduce our fee rate at predetermined thresholds.

My clients really appreciate a fee review. They typically don’t know what they are paying or who is paying what. And while my fees are typically at or below average, it gives me an opportunity to show my value, especially on the rare occasion I come in above average, and earning every bit of it.

Clients seem to like that we reduce the fee analysis to two pages consisting of an Excel spreadsheet and a pie chart, without sacrificing detail. First page is “What are your fees?” and second page (pie chart) is “Who is getting paid?”

I thought everyone did benchmarking for their clients. :)

We conduct fee reviews (on quarterly basis we also cover “what fees are you paying”). Annually we build this out to a broader conversation on fees at the Committees. Lastly, every several years we present a Fid Benchmark report to gauge and level set fees (as may be warranted).

We help our clients review the 408b2s and then provide benchmarking data for each service provider. Approximately every 3(ish) years, we recommend they distribute an RFI or RFP, depending upon the facts and circumstances.

We’re hearing time and time again that benchmarking and negotiation is not a substitute for a competitive search in the market, so we are also expecting an increase in RFP work this year.

Extremely important and without a lot of work an easy way to add value.

I do them every 3-4 years and ad hoc as needed.

I do fee reviews on almost every Plan Review meeting I have. Normally, at least 2 plan review meetings are set up each year. I’ve always believed in being transparent with fees and the more you review fees the more comfortable the client is. It is much tougher for someone to come after and try to ignite the conversation with “have you done a fee benchmarking analysis lately?”

Great thing about fee reviews is that you might even be able to use the to obtain a fee concession from the recordkeeper without an RFP!

And finally—a comment from a reader that brought a smile to my face: “Hope you’re doing well. I’m did something today that I haven’t done since March 12/13, 2020… left my computer at my desk overnight because I got to work in my office in Omaha 2 days in a row this week! How refreshing to be back at my raised desk.”

Thanks to everyone who participated in this—and every week’s—NAPA-Net Reader Poll!