Thanks to federal fee-disclosure regulations that took effect last July, more defined contribution plans have been searching for record keepers — even though many ultimately will stay put.
Fee disclosure regulations “drove more interest to test the waters and review new opportunities,” said Kevin Collins, vice president and head of sales and client services for T. Rowe Price Retirement Plan Services Inc., Baltimore. “Clients don't leave solely for price, because price can be reconciled. People leave for poor service. There's more responsibility for providers to show they are offering value.”
Not every request for proposal or request for information leads to a change in record keepers, said Mr. Collins, adding many RFPs and RFIs are the DC-plan equivalent of “kicking the tires.”
Record keepers say the stepped-up pace of RFPs and RFIs started before the rules took effect. They also say the regulations have prompted plan executives to ask more questions about reducing the role of revenue sharing, in which all or most of a record keeper's costs are offset by a plan's investments. And although record keepers wouldn't discuss their fee strategies, some surveys indicate the regulations have contributed to lower fees.
J.P. Morgan Asset Management executives have detected a rise in RFPs and RFIs this year. However, there's a reluctance by DC plan executives to change record keepers, said Michael Falcon, the New York-based managing director and head of retirement, Americas.
“There is a high incumbency bias,” he said. “The process often results in fee and service changes, but the plan itself stays with the provider. Even so, incumbents do not take this for granted.”
An August report by Cerulli Associates, Boston, said 74.4% of plans with more than $5 billion in assets are likely to remain with their record keeper for three or more years. Two-thirds of the plans with DC assets between $1 billion and $5 billion are likely to remain with their record keepers for three or more years.
Although Cerulli predicted searches will increase “dramatically” because of the fee-disclosure regulations, most of the activity will be among DC plans with less than $1 billion in assets “due to the challenges of converting large plans,” the report said.