Whether advisors like it or not (and perhaps due to their own efforts), fees are becoming a top priority for 401(k) plan sponsors, according to the 2016 Cogent Retirement Planscape study. Polling nearly 1,500 plan sponsors in Q1 2016, the focus on fees is clearly front and center.
Whether it’s because of the rash of excessive fee lawsuits, DOL fee disclosure rules or advisors leading with how they can help plans reduce costs, plan sponsors now cite for the first time that reducing fees is their highest priority.
Cogent noted that fees were cited by plan sponsors as the most common reason for switching providers, and are an important driver of satisfaction and loyalty for record keepers as well as the top brand enhancer.
So are fees really going down? Though the use of less expensive ETFs and index funds may appear to be lowering fees, according to the 401k Book of Averages, expenses to run a plan imbedded within the fund’s expense ratio are rising. This does not make sense given the greater use of technology, industry consolidation and efficiencies, which should result in higher productivity and lower costs. While the expense ratios of a $2 million and a $10 million plan dropped 0.04% as of Sept. 30, 2015, revenue sharing increased 0.03% for both segments; record keeping increased for smaller plans by 0.02%.
While larger national record keepers may be able to weather the fee storm through technology and leveraging fixed costs, it doesn’t seem likely that most advisors will be in a position to follow suit. That will likely cause more advisors to join forces with firms that will allow them not just to leverage tools and services they might not able to afford on their own, or to better manage their practices, but also to get access to better pricing from money managers.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
