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.
When Plans Justify Higher Fees
Sponsors might jump at the chance for the lowest possible fees, but that may not always be prudent when bare-bones services won’t achieve organizational goals. A lower fee structure, for example, may include only an annual meeting with the retirement committee, but if you’re needed on a quarterly or even monthly basis to consult with members, this will understandably increase your rate. PlanFees’ Advisor Fees and Services Benchmark lets you benchmark 15 essential advisory fees along with the frequency of services provided to help ensure fees are commensurate and reasonable with your offering.
When Participants Justify Higher Fees
An advisory firm might provide bare-bones service at a low cost, but an expanded service menu may better meet employee needs. For example, when group education and one-on-one sessions boost participation rates, it may be not only reasonable, but also advisable for the plan to take on higher fees to include a robust financial wellness offering. If you’re fielding questions from workers with a dedicated plan manager instead of redirecting them to a provider call center, these services may also add to your price — and the commensurate value provided.
When Investments Justify Higher Fees
Some plan fees are generated from investments themselves. If the lineup is mostly composed of passively managed funds, you’ll likely have lower fees; but for actively managed funds, fees tend to run higher. As plans become more customized and incorporate different types of alternative investments, services and fees may evolve.
Brokerage windows are a popular way to boost engagement because they allow participants to make more of their own investment decisions, which may be highly desirable to certain subsets of participants. But these windows often come with increased fees. Though many are charged on a per-trade basis, some brokerage windows charge additional fees. The ERISA Advisory Council has found that an additional fee of $50 a year is common for this service. But recordkeeping fees might also increase with self-directed options — and the kind of financial guidance that participants require to use them could increase as well.
Fees Are Never a One-Size-Fits-All Proposition
The best price, plan design and service package for every client are unique. Trying to keep fees low is only one part of the equation. If your benchmark reveals high fees, trying to lower them still may not be the best course of action — especially when desired functionality or levels of services will be sacrificed.
Benchmarking with PlanFees Total Fees Benchmarking can provide a quick fee checkup, but it’s just the first step in the process when higher fees are found. Conduct a deeper dive into advisory fees with Prism365 Advisor Fee & Services Benchmarking and even receive real quotes within 24 hours with RFP Express — and continue the fee conversation.
Benchmark better with PlanFees.
Sources
https://www.employeefiduciary.com/blog/four-401k-plan-services-that-justify-higher-provider-fees https://www.investopedia.com/terms/b/brokerage_window.asp
