It’s hard to get even a few people to agree on anything, but Yale Law School Prof. Ian Ayres’ “love letters” met with a uniform and resounding reaction from the DC industry because of their threatening tone and flawed data and analysis (as well the brand of the institution professor Ayres represents). The good professor fell into the same trap that many advisors have encountered: relying on purportedly valid data and focusing solely on fees.
After all, the 5500 database is issued by the government and is based on filings signed by plan fiduciaries.
Fiduciary Benchmark’s Tom Kmak takes on not only Ayres’ letters but the entire 5500 database market that creates the ammunition for people like him to threaten plan fiduciaries by relying on bad data using elementary and flawed analysis.
Though bad data is bad enough — Kmak cites specific examples of Ayres’ errors — the analysis might have been even worse. First of all, fees were compared to a pool of almost 50,000 plans with more than 100 participants without regard to size, industry or account balance. It would amount to comparing IBM’s plan to Walmart’s or a 100-person law firm in DC to a local messenger service. (Never mind comparing the local messenger service to IBM.)
Then there’s the issue of value. Some firms might require 100 hours of in-person meetings. Some may have an advisor providing valuable assistance to the fiduciary and participants. And where is the analysis of results like deferral rates and retirement readiness? Also, there’s no way to account for ERISA budgets and other participant-driven fees, notes Kmak.
The point here is that the FBi press release reminds us that there are things that we as an industry can do better. First, if the 5500 database does not include some expenses or if the data is bad, maybe we should try to fix it.
Second, third-party vendors making this data available and encouraging clients to use it to, at best, find new clients and, at worse, scare the wits out of plan fiduciaries — especially if they include a rating — need to be held accountable.
And finally, advisors that prospect focused on fees (and who among us has not done that at least a few times) are missing the point and will only lead us to a world where costs are the primary issue without taking into account value, services and results. That world is not good for providers, advisors, plan sponsors and, most importantly, participants, who need lots of help and guidance — both of which cost money.
