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Provider Fees and Revenue Declining

In a survey of 100 DC plans conducted by NEPC, (free registration required) a DC and pension consultant, fees and revenue charged by record keepers dropped 5 basis points over the 15-month period ending March 31, 2012. According to NEPC, revenue related to record keeping, custody and trust also dropped 11%.

NEPC surmised that providers were lowering their fees in anticipation of the disclosure regulations, but the firm also saw record keepers shift revenue to monies received from investment firms on their platform.

The average plan in the survey held $664 million, with the median at $294 million. The average cost per participant fell to $92, down from $103 in December 2010 and $118 in 2006. Just as telling, record keepers dropped their fees 40% when participating in an RFP, with 10% of plans conducting one — although it was not noted how many actually made a change.

What does this portend for the smaller market? Many plan advisors have been very successful in helping clients and prospects lower fees, sometimes by simply moving to a lower share class. This trend should continue, not just because of increased fee disclosure, but also because of heightened awareness by plan sponsors.

These trends leave advisors vulnerable to attacks on their fees — which have been declining even more precipitously than for record keepers. And as provider fees decline, it is inevitable that service will suffer and provider consolidation will continue — which may cause greater activity but also greater pain for advisors. Just ask those advisors with Hartford plans, which had been under siege until the MassMutual announcement.

While plans offering stable value declined from 62% to 47%, plans offering money market, TDFs and brokerage accounts grew, although the percentage of participants who used a brokerage window declined to just 5%.

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