Standardized 401k fee disclosures

"See your monthly invoice". Yep. That's what the 401k plan 408b2 plan fee disclosure said. For each service on the fee disclosure, there was a standard pat answer for how much the plan was paying. "See your monthly invoice". I couldn't help but feel the 401k platform was congratulating itself on having met the requirement of providing an annual fee disclosure notice while simultaneously disclosing nothing.

Retirement plan fee disclosures come in two versions. The 408b2 covers how much a plan is paying for all services. The 404a5 show how much participants are paying for relevant services. These should be easy to read and simple to comprehend. Yet frequently, these two disclosures are as clear as mud.

As Professor Dan Ariely of Duke has shown in his behavioral economics experiments, the more steps you introduce into a process, the less likely someone is to follow through, let alone understand what is going on. By asking the plan sponsor or plan advisor to dig up a monthly invoice and then try to find the fees in question, the effort to analyze plan fees just got harder. In fact, the fee analysis might get back-burned which benefits the existing platform as the 401k plan may stay put.

I happily disclose my 401k fee to prospective plan sponsor clients. I know my value. I have been in the industry thirty-two years and have run my 401k practice for sixteen. Likewise, I partner with retirement plan platforms that are crystal clear on their fees, their services, and the value they bring to the table.

I don't seek out business as much as I try to make sure prospective clients are directed to the proper channel for help, even if that means directing them to a different advisor. I would rather the prospective client be happy than dread their phone call. If my fees are not workable for a prospective 401k client then I will try to help them find a channel that will work for them.

Fees are not the only thing that matters in understand and benchmarking a plan. You need to look at the services provided as well as the quality of the service. And yes, some plan sponsors will knowlingly pay above market because they value the relationship they have with their provider. The decision to remain with a particular provider should be documented along with fee analysis.

Having said that, I actually favor a standardized 408b2 plan fee disclosure as well as a standardized 404a5 participant fee disclosure. Plan sponsors should be able to easily understand what they are paying for as well as be able to easily benchmark their plan fees. I believe in transparency and shun obfuscation. Make no mistake, I am here to help while making an ethical profit. As an investment company founder said back in 1936, "Don't begrudge me a profit. Begrudge me the unfair one".

What are your thoughts on standardized fee disclosures? Would this help you as a plan sponsor? As a plan advisor?