Posted by fi360 on December 14, 2015
fi360 hosted a webinar recently on benchmarking (a recording of which is available on our website). Since we were unable to respond to all of the questions during the session, we are posting responses here. Keep in mind that the information provided below is for educational purposes, not as legal or compliance advice. So with these caveats, here are our responses:
Q: Are you seeing a differentiation between 3(38) services? For example, making the investment decisions for the plan sponsor on the core line-up versus building models and managing those proactively?
A: For advisors we work with who offer 3(38) services, most are able to act in a 3(38) capacity for both core investment decisions and for creating plan-level model portfolios. However, client utilization is limited. On average, 19% of an advisor’s plan sponsor clients utilize 3(38) investment selection services and 20% utilize 3(38) services for model portfolio creation. The median utilization rates are lower at 5% and 6% respectively.
Q: The data you shared indicated fees of 0.3% of total assets for a $5M plan. I have seen other sources in the 1.3% to 1.6% range. What gives?
A: While we do not track data on total plan costs (including investment fees, administration, etc.), we have consistently observed average advisor fees between 0.35% and 0.30% of total assets for a $5M plan over the past several years. As expected, smaller plans tend to pay a higher amount of fees when expressed as a percentage of total assets (for example, our data shows a $1M plan has an average advisory fee of 0.54% of assets while a $10M plan has an average advisory fee of 0.24% of assets).
Please note: In addition to these questions, we also received a number of questions regarding the specific methodology and data points of Ann Schleck & Co.’s benchmarking studies. Due to the proprietary nature of that data, we are unable to respond to all of these inquiries. If you are interested in learning more about the Fee Almanac of plan advisory fees, visit http://www.fi360.com/offers/fee-almanac where you can request sample pages from the book.
Q: If the plan sponsor is picking up ALL the admin costs, and there is no revenue sharing, and the plan carries only passive investments - what 408 requirements exist?
A: Disclosure requirements would not change significantly. If no admin costs are being carried over to the participants, then the burden for paying only “reasonable” fees for those services would seem to be irrelevant. However, the plan sponsor would still be expected to select service providers and investments according to a prudent process that is in the best interest of the participants and to continue to monitor those providers. 408(b)(2) service provider disclosure requirements to the plan sponsor would remain the same, while 404(a)(5) participant disclosures could omit any expenses that are not affecting participants.