Study: DC plan executives want more fee data more frequently

Defined contribution plan executives want more information on fees, and they want it updated frequently.

According to a survey published this summer by Spectrem Group, Chicago, more than 60% of surveyed plan executives said the amount of fee information they require as part of requests for information today is considerably more extensive and detailed than it was three years ago. Questions regarding revenue-sharing practices have increasingly been added to RFPs.

Spectrem surveyed 150 plan executives during the second quarter.

DC plan providers say they are more than happy to oblige the new requests.

Kevin Crain, director of integrated benefits at Merrill Lynch Retirement Group, Pennington, N.J., said, "On the new business side of things, I have seen an increase in the last 18 months from consultants leading searches. We have a detailed schedule to complete on RFPs where we don't just detail the funds, but … (also) the expense ratios and revenue sharing agreements."

As for what is driving this movement, Mr. Crain said, "There was a great deal of talk in the DOL (Department of Labor) around greater disclosure and transparency of fees. It also has to do with consultants showing the value of what they do for clients" in requesting fee information.

John Doyle, vice president of marketing and communications at T. Rowe Price Retirement Plan Services Inc., Baltimore, said, "We've seen them (clients) ask for disclosure in a little more detail than in the past. When you talk about mutual funds, it's natural to inquire about fees. Fee disclosure is good for the biz and it's something we've always done. We encourage plan sponsors and consultants to ask for the information."

During the RFP process, "We disclose what our administrative fee payments are, and that helps in a decision-making process. We have agreements in place, and those are all disclosed during the sales process," he said.

Steve Patterson, vice president at Schwab Corporate & Retirement Services, San Francisco, said, "We're seeing an increase in questions in the RFP process. Part of their obligation as a fiduciary is to be able to understand where every one of those dollars paid is going. You need to know how much you're paying. It's clear what you're paying your record keeper and consultant. What is not clear is the expense ratio of each fund, how much of that money goes to the investment manager and how much is a fee offset?"

More than 80% of plan executives surveyed said their RFP requires disclosure of plan fees and compensation and revenue-sharing agreements with other money managers, according to Spectrem Group.

"We will show existing customers (fee information) at least annually. And new customers, we'll show them fund by fund, the expense ratio, how much revenue Schwab is receiving from the investment lineup," said Mr. Patterson.

Don Salama, senior managing director of sales, marketing and product development at NYLIM Retirement Plan Services, Boston, said, "From the sales and prospecting side, there's no doubt they want to see more information. What's changed is how they want that presented and how much data they want. We have a document that we only do for prospects. It's a revenue disclosure contract and it outlines the expense ratio, to show how much of that revenue is being paid to us. For example, an American Funds option might have an expense ratio of 80 basis points, and they may pay us 40 basis points. That's something plan sponsors want to see and want to see clearly."

Despite the fee disclosures already provided, 40% of plan executives said they will require more detailed fee information in future RFPs. Only 25% felt their current approach was enough.

Yet plan executives are satisfied with the information they receive regarding fees and compensation, Spectrem Group found. More than 60% said they were extremely or very satisfied, while only 5% expressed dissatisfaction.

But the desire for more information extends past the RFP phase. Plan executives are looking for more frequent updates about fees paid to the provider.

Mark Niziak, managing director of ERISA consulting for NYLIM Retirement, said, "When you look at what is being paid, having a quarterly update doesn't do you much good. But we'd be willing to do it." NYLIM does fee updates annually for its 300 defined contribution clients.

"If a client wants it done quarterly, we would do that. It's unlikely much will change, but we're willing to review it with them," said Schwab's Mr. Patterson, adding that a very small number of its 850 defined contribution clients have made such a request. Reviews generally are done annually.

"We'll meet with (current) clients as much as they want to," Mr. Doyle said, referring to quarterly meetings. "We definitely sit down with them on an annual basis, and we have and would be willing to do it quarterly," he said of the firm's 700 defined contribution clients.

Merrill Lynch provides its 1,500 clients with a detailed analysis of fees paid on an annual basis, said Mr. Crain.

"In our larger (client) market base, clients may want semiannual or quarterly reviews of fees. But, I'd say 90% plus of our clients are fine with it on an annual basis," he said.