Plan investments and record-keeping services aren't the only things that financial advisers will have to benchmark as part of the upcoming fee disclosure regulation.
They also will have to watch their own backs.
The difficulties of self-benchmarking for advisers came up in a panel discussion last Tuesday at the American Society of Pension Professionals and Actuaries' 401(k) Summit in New Orleans. The discussion covered the nuances of the upcoming Labor Department fee disclosure rule for plans, which will require retirement plan service providers to spell out performance and expense details for investment options, as well as require advisers to break out the services that they provide and their compensation.
Not only will advisers face fierce vetting from plan sponsors but also from service providers with which they work.
John D. Blossom Jr., president of Alliance Benefit Group, a plan administrator, noted that he himself has vetted an adviser who was working with a retirement plan client. In the end, the adviser was providing poor advice, and after Mr. Blossom brought this to the attention of the retirement plan client, the relationship between the plan sponsor and the adviser ended.
Mr. Blossom brought up the fact that when it comes to requests for proposal, record keepers and other service providers could suggest that plans reconsider their relationship with their adviser, especially if they can provide services for less.
Panelist Michael J. Hagelgans, an adviser with The Centurion Group, said that this is a risk, but he noted that advisers should spell out the services that they are providing for the fees they charge.
“If the plan sponsor feels it's important to do an independent review of fees, we're comfortable with that,” he said. “We're welcome to opportunities and comfortable in our service model.”
Panelist Jason C. Roberts, chief executive of Pension Resource Institute LLC, and a panelist, agreed, noting that advisers have to justify the services they provide.
“You can drive the conversation toward value and away from cost,” he said.
“What if you're in the higher decile of adviser fees? There's the opportunity to have the conversation and supplement your files,” Mr. Roberts said.
Audience members noted that fee disclosure hiccups also may include hard-to-benchmark services, such as the cost of auditing services and legal counsel. Attorneys specializing in the Employee Retirement Income Security Act of 1974 could have a broad range of fees based on the work that they handle for a given plan.
In those situations, it might make the most sense to call up several firms to get a ballpark idea of where the costs ought to be.
“Call a few firms, and if it seems consistent, then that's more proactive than most,” Mr. Roberts said.
dmercado@investmentnews.com
