New data triggering a rethink about vendors; clients open to switching
Mandated retirement plan fee disclosure has been in effect for only a few weeks, but plan sponsors are already bailing on costly service providers.
The much-ballyhooed retirement plan fee disclosure to employers went into effect July 1, requiring record keepers, third-party administrators and other service providers to divulge their fee data. Similar details will need to be shared with plan participants starting Aug. 30.
While plan sponsors have only just started receiving their fee disclosures, some of them are displeased with the fees they're paying, particularly the cost of insurance for group annuities.
“We changed over one client who was in a group variable annuity that cost 1.39%, switching over to Fidelity Investments,” said Brian T. Niemann, president of Wealth Management Group LLC. “It wouldn't surprise me if we had a few conversions.”
Though everyone is focusing on the participant fee disclosures that will be coming up at the end of August, it's really the disclosures to plan sponsors that will create waves, advisers noted. Employers who are dissatisfied with the services they're getting for the fees they pay are ready to make some changes.
For Stephen D. Wilt, senior vice president and adviser at Captrust Financial Advisors, the last three weeks have brought across six new and unsolicited employers looking to dump their previous provider. One of those clients already has decided to sign on with Captrust. “Six to 10 new clients in one year is a good year,” Mr. Wilt said. “Last week was a week of unsolicited opportunities coming in the door.”
In some cases, the prospective clients are looking to break up with advisers who don't specialize in retirement and who haven't been very attentive to the plan's needs. Plan sponsors have a duty to ensure that the fees are reasonable.
“They have an obligation to look around,” Mr. Wilt said of the plan sponsors. He noted that the firms he's been working with for new business include The Charles Schwab Corp., Fidelity and T. Rowe Price Group Inc., while some of the smaller plans have been signing on with Great-West Retirement Services.
The Labor Department recently announced improved procedures to protect plan sponsors from fiduciary liability in the event a service provider doesn't comply with the disclosure requirements. Employers can notify the department when the service provider fails to submit the information.
Still, not having that information in the first place is enough for some plan sponsors to walk away from their providers, advisers said.
“It's viciously competitive,” Mr. Wilt noted. “If you're with a provider that hasn't been proactive, you have an opportunity to negotiate your fees and benchmarking.”
“Some record keepers are less prepared than others,” said John Wilcox, an adviser with Mayflower Advisors LLC. “They're not prepared [for fee disclosure] or they're not communicating that to their clients. If the vendor isn't ready, then maybe we should look elsewhere.”
