The Department of Labor's long-awaited rule detailing the fee and compensation information that service providers must give to plan sponsors is expected to be a boon to investment consultants.
“When it comes to the fees that need to be disclosed, sponsors often need help understanding the fees, and the help needs to be independent,” said Robyn Credico, defined contribution leader at consultant Towers Watson, New York.
“I expect a lot of plan sponsors who haven't done this sort of analysis in the recent past to come out of the woodwork” to see if their fees are reasonable, added Matthew Gnabasik, managing director of the Blue Prairie Group LLC, Chicago. “Most plan sponsors would be better served by using a good plan consultant in this process.”
The rules, intended to shine a light on the potential conflicts of plan service providers, apply to both defined benefit and defined contribution plans, but most of the impact will be on defined contribution plans.
Under the rule, consultants — and many plan service providers — will be required to reveal to DB and DC plan sponsors hitherto undisclosed compensation they are receiving, including any revenue sharing or finder's fees.
The new regulations, which do not go into effect until July 16, 2011, also are expected to be good for consultants because they require bundled providers to defined contribution plans — such as Vanguard Group Inc., Fidelity Investments, T. Rowe Price Group Inc. — to break out for clients the costs of record keeping included in their packages.
“There's added value in using a consultant to benchmark the record-keeping process and lead the negotiation process with the provider,” said Amy Reynolds, partner in the defined contribution consulting business at Mercer LLC, New York.
Some consultants said they are already ensuring that the fees plan sponsor clients pay are reasonable, whether the sponsors are using a bundled or unbundled provider.
“We've been providing our clients a detailed analysis of fees for years,” said Ross Bremen, partner, NEPC LLC, Cambridge, Mass.
An unbundled provider — such as Hewitt Associates LLC — offers record-keeping services only and usually doesn't have a proprietary interest in the investment options on its platform. Bundled service providers offer packages of services that usually include at least some proprietary investment options.
The DOL delayed for a year the effective date of its rule to give plan sponsors and service providers time to prepare. The new regulations are intended to give sponsors information to ensure that plan service costs are reasonable.
Along with requiring bundled service providers to break out costs of their record-keeping services, the new regulation also requires providers to disclose whether they are acting as fiduciaries to plans.
They also require broker-dealers and record keepers that provide unbundled services to disclose compensation information on investment options for which they provide brokerage or record-keeping services.