PLANADVISER - September/October 2019 - 26

DC Recordkeeping:
The High Cost of Low Fees
Recordkeepers
S
ponsors of defined contribution
(DC) retirement plans have been
on a multi-year mission to reduce
costs, both in fees for investment
management and plan administration.
And with apparent success: For recordkeeping
in particular, surveys report
that pressure from sponsors and
advisers, as well as competition in the
market, have reduced per-participant
costs by about half, in dollar terms,
over the last dozen years.
But sponsors and their advisers need
to look beyond the published fee rates,
as recordkeepers take measures to
subsidize lower recordkeeping fees
through
investment
products
and
also significant
are calling their
services more
efficient, or
streamlined,
but that may
be a kind way
of saying " less
service. "
other indirect routes. They also need to
be alert to reduced levels of service, as
recordkeepers automate and offshore
their operations.
PLANADVISER met with Ted Schmelzle, Senior Director of Plan
Sponsor Services, and Kent Peterson, Chief Financial Officer,
both of Securian Financial Retirement Solutions, to discuss the
evolution of the recordkeeping marketplace, the complexities
facing sponsors, and the crucial role advisers play in optimizing
costs and fees for their DC sponsor clients.
PLANADVISER: For years there have been moves to cut
costs from all variables in the DC equation. Has the total
effective cost really gone down that much, and what has
been the benefit to sponsors and participants?
Kent Peterson: It's hard to find a place where there isn't fee
compression in the retirement space-with asset managers,
recordkeepers, and the advisers that support plans. Sponsors
have been looking to pay lower
fees, and providers have
promised that they would deliver the same service at a lower
price point. In many instances that helped to wring a lot of
inefficiencies from recordkeeping.
But that may have run its course. In the conversations we
have with sponsors and advisers, of course they think it's
great to have lower fees, but
there's
frustration
with deterioration in service. That
means sponsors and advisers have
to work harder to make up for the
reduced service, and in the end it's
just shifting the costs,
rather than
creating a true net saving. We've
just published a white paper, Fee
compression isn't free, that discusses
the challenges, and suggests a list of
questions for advisers and sponsors
to aid in their due diligence: www.
securian.com/FeeCompression.
Ted Schmelzle: Many advisers that
really provide sponsors with good
input to their decisions are saying
to clients " If all this is making your
job as a sponsor harder, and more
difficult for me too, then maybe the
lower fees aren't all they're cracked
up to be, " and pushing back on some of the fee compression.
PA: The structure of DC plan services is awfully complex-
how does an adviser get a reasonably accurate view of
the true cost sponsors are paying, and what it is they are
paying for?
Peterson: There's always an inclination to take the fee illustration
the recordkeeper presents as the actual price. Advisers
need to go well beyond that, and look for possible conflicts
of
interest
for the service provider-revenues
from other
sources that subsidize the reduced recordkeeping fees. Unfortunately,
the subsidies can take many forms - the provider can
be guiding sponsors to use their own stable value funds, or
adopt their in-house target date fund series, which may not
be the best values. Revenue sharing through 12(b)-1 fees is
still prevalent, too. More recently, a few recordkeepers have
established so-called pay-to-play platforms, where they charge
a fee to mutual fund companies to be part of a select list of
investment options they offer to sponsors. And the smaller the
plan, the more likely it is that sponsors are being talked into a
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PLANADVISER - September/October 2019

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