Held by schools and other tax-exempt organizations, 403(b)s used to be highly dissimilar to 401(k)s — with fewer rules and requirements. And by far, the majority of high-profile excessive-fee lawsuits have targeted 401(k)s. But a recent suit against Northeastern University’s 403(b) is a strong reminder that all retirement accounts mandated under ERISA to keep fees reasonable are at risk.
Plan fiduciaries have many important responsibilities to uphold. And they must act solely in the interest of participants and their beneficiaries. To that end, they have to prudently manage investments, administer the plan properly, monitor service providers and much more.
PlanFees data shows advisor compensation fee structures are trending away from commission-based schedules and toward fee-for-service models. As a result, it’s more important than ever for advisors to be equipped to justify the fees they charge relative to the level and frequency of the services they provide.
According to PlanFees data, most advisors have a small staff of one to five employees. And with your team already performing intricate, three-to-five-year live-bid benchmarks, there may be little time left to conduct an annual benchmark on your other plans during off years.
Are you considering broadening your professional horizons in 2023? If you’re thinking about incorporating retirement plan advisory services into your offering, you probably have questions. And to provide a high level of service to your new plan sponsor clients, you may need to make some additions to your advisory toolkit:
Mutual of America, an insurance company that also provides services in the small-plan marketplace, has found itself in the crosshairs of an ERISA lawsuit alleging a breach of its duties of loyalty and prudence to plan participants. The plaintiffs charge that they were subject to excessive fees as a result of the company’s adoption of its own proprietary closed-architecture recordkeeping platform. The system, they allege, caused participants to pay annual administrative fees roughly 10 times what they would have if the plan had researched and engaged a third-party recordkeeper to perform comparable (or even better) services.
Due to the recent uptick in 401(k) lawsuits, it could be easy to assume that the best course of action is to always obtain the lowest possible fees across the board. But at the crux of these legal actions is the supposition that fees are too high for services provided. What’s considered reasonable isn’t a set dollar amount, and a reasonable fee might not have to be the lowest available, depending on the details and needs of a plan. Here are some instances where higher fees may, in fact, be justifiable.
Alternative investments are assets that don’t readily fit into traditional categories like stocks, mutual funds and bonds. Instead, they can include assets like real estate, cryptocurrency, hedge funds, venture capital, private equity and even physical commodities. Changes in underlying technologies or other market factors, such as cryptocurrency platform Ethereum’s recent “merge” update and transition to a more energy-efficient protocol, can have significant impacts on alternative investment valuations, expenses and performance over time.
The witching hour is fast approaching, as a full, blood red moon appears low on the horizon. Creatures of the night hunt for prey while you lie awake in bed, unable to sleep. Your mind races and your pulse quickens. You can’t get the image out of your head … the shadowy figures … the relentless pursuit … not settling for anything less than the utter destruction of your retirement plan. Suddenly, you hear a knock at the door. Please don’t let it be them! No, not the lawyers!
You’re a successful financial pro with a growing practice, but always on the lookout for ways to build your book of business. One day, a longtime wealth management client says they’re concerned about the fees for the retirement plan they sponsor at their growing medical practice. This situation offers a great opportunity to pick up their 401(k) — and potentially the personal accounts of the doctors and staff. You’d love to be able to offer a fast benchmark, but a live bid would take too long — and it’s not what’s called for in this prospecting scenario. But now, advisors have more benchmarking options that allow them to choose the right tool for each client situation. With PlanFees, you can move beyond “check-the-box” benchmarking to a more targeted, strategic and effective approach.