Wells Fargo: Slight effects foreseen from fee disclosure rules
By Robert Steyer | April 19, 2012 2:42 pm
New federal fee-disclosure regulations will have a modest positive effect on participants' behavior and little effect on executives' management of plans, according to a survey of defined contribution plan executives by Wells Fargo Institutional Retirement and Trust.
When asked the “likely outcomes” of the fee-disclosure regulations for participants, 49% said the participants will be confused by the regulations, and 48% said the disclosure will have “little impact” on participants, said a report on the survey issued Thursday.
Only 5% said the regulations would help participants make better investment choices, while 20% said participants would exercise greater scrutiny of fees. Respondents were allowed to provide more than one answer.
Sixty-four percent of plan executives said the rules would not change how they administer their plans, while 22% said they might compare costs among service providers. Seven percent forecast an overall increase in plan expenses; another 7% predicted an overall decrease.
Fee regulations affecting disclosure from providers to sponsors take effect July 1, while the rules governing disclosure from sponsors to participants are effective Aug. 30.
“If you look at participant education in general, it's been a challenge because inertia rules,” said Joe Ready, co-director of Wells Fargo Institutional Retirement and Trust, in an interview. “Although we think there will be some participant action (based on the fee disclosure rules), we think it will be limited.”
Among sponsors, Mr. Ready predicted the rules wouldn't have much impact because many have been improving fee transparency over the years. “At the plan design level, I expect little impact,” he said. “They have been saying that this (the new regulations) is not different or new to them.”
Mr. Ready noted that there was a gap between what plan executives say about retirement and what they do in terms of helping employees prepare for retirement. Although 63% said their primary plan management goal this year is to educate employees about how much to save or retirement needs or about increasing employee savings, only 11% are measuring each employee's retirement income vs. an employee's expected needs.
Sponsors “spend a lot of time on investment performance,” Mr. Ready said. “The real focus should be on measuring retirement readiness.”
The survey also noted that plan executives said the biggest retirement risk for participants is market volatility, with 53% saying they were very concerned. Other risks with high very-concerned rates were participants' failing to understanding retirement needs (42%); participants ability to make savings last through their retirement (40%); and participants' financial ability to save (35%).
The online survey of plan executives was conducted in the fall. Most ran 401(k) plans, although some respondents offer more than one defined contribution plan and others also offered defined benefit or cash balance plans. Ninety percent of the plans have assets less than $150 million. The plans are not all Wells Fargo clients.