FiduciaryNews’ Christopher Carosa raises the controversial question of whether the time has come to eliminate 12b-1 fees and other forms of revenue sharing in corporate retirement plans.
Though the trends seem compelling enough, including the recent success of plaintiffs in obtaining multi-million dollar settlements in the so-called “excessive fee” cases, Carosa’s prognosis is that revenue sharing and 12b-1 fees are here to stay.
So why might these fees go the way of the dinosaurs?
- More advisors are able — and likely — to be fee based.
- More advisors are and will be fiduciaries requiring level compensation.
- Level participant fee schemes only highlight the fact that variance in revenue sharing is used by DCIOs to get better placement on a record keeper’s system.
- Plan sponsor sophistication is growing — no one believes in the “no cost” DC plan anymore.
- Greater fee transparency due to 408(b)(2) and other regulations.
- Fees rise and fall based on markets, not services provided.
- More advisors are going to flat fee payments.
On the other hand, Carosa notes that these fees are likely to be around for a while in smaller DC plans with limited levels of knowledge or time and commissioned brokers who are still prevalent in the micro market — not to mention the higher relative costs and plan sponsors’ reluctance to pay for those services on a flat fee basis in those markets. So while the ICI indicates that only 10% of 401(k) plans use 12b-1 fees, 87% use some form of revenue sharing.
High fees and funds over-weighed with revenue sharing for the size of the plan are still good opportunities for experienced plan advisors. But be careful when you lead with fees — yours may be next.
