A survey of consultants serving defined contribution plans with $2.4 trillion in combined assets offers an emphatic prediction that new federal fee-disclosure regulations will spur executives to reduce or drop revenue sharing.
The survey, to be released April 1 by Pacific Investment Management Co., also offers a broad and detailed pulse-taking of other key issues in the DC industry ranging from asset allocation to plan management.
“Clearly, plans are moving to mutual funds with zero revenue sharing and to collective investment trusts with zero revenue sharing,” said Stacy Schaus, executive vice president and defined contribution practice leader of Newport Beach, Calif.-based PIMCO, in an interview. “We believe this trend will continue.”
When asked about the impact of regulations requiring fee disclosure to plan sponsors by providers, 85% of consultants said they expect an increase in the use of mutual funds with zero revenue sharing.
In addition, 81% of consultants said they expected an increase in the use of collective investment trusts, and 53% predicted a greater use of separate accounts to reduce the impact of revenue sharing.
The larger the plan, the more likely it will use a separate account, Ms. Schaus said. Although the survey didn't ask consultants about the asset size of DC plans seeking to reduce or eliminate revenue sharing, Ms. Schaus said the largest plans are leading the way, but other big plans are also taking action to reduce or eliminate revenue-sharing.
Consultants also predicted a big drop in sponsors' use of high-revenue-sharing mutual funds, the survey said.
Ninety percent forecast a decrease or a significant decrease in sponsors offering mutual funds whose revenue sharing exceeded 25 basis points. Some 68% predicted a decrease or a significant decrease in sponsors' use of mutual funds with revenue-sharing costs of 10 basis points to 25 basis points.
Fee-disclosure regulations also play a role in guiding the biggest source of business growth for consultants, Ms. Schaus said. When asked which services had grown the most over the past year, 67% of consultants cited total plan cost or fee studies, 51% identified record-keeping searches and 43% referenced investment design.
Although these growth sources also were cited most often in the two previous annual PIMCO surveys, Ms. Schaus said the latest answers “were definitely related” to fee disclosure rules and to litigation.
“Sponsors are hiring consultants to evaluate fees,” she said. “This goes hand in hand with the fee-disclosure regulations that raised their awareness.”