Impact of New DOL Fee Disclosures Already Evident

    0
    427

    While they will not take effect until April 2012, the first changes from the new DOL disclosures have already emerged, months before the new rules are slated to become effective.

    First is a plan by Schwab’s OneSource Supermarket platform to offer only index funds into 401(k)s at a cost of 20 basis points (bps) and 65-75 bps with advice. The announcement  said only index funds will be available in its  “Index Advantage” 401(k) plan platform.  Participants will have a choice of 17 asset classes to include in their portfolio. 

    The head of Schwab’s institutional group told  Reuters:  “We saw how people got upset about even the fees on their bank credit cars an debit cards…wait until they see their 401(k) statement disclosures.”

    (Note:  This Web site had an article on the repeal of Verizon’s plan to charge a $3 fee on using bank cards and what it would mean to the new DOL 401(k) disclosure plans.  That story ran December 3, 2011 on this site.)

    Second is an opinion by attorney Fred Reish that the 401(k) fee disclosures are “unworkable” because they offer “hundreds of different compensation arrangements.”

    Revenue Sharing: An Industry Embarrassment

    While that may be true, revenue sharing is an industry embarrassment and

    Mercer Bullard

    as Mercer Bullard, a law professor at the University of Mississippi, said, this fee disclosure complexity was created by the 401(k) plan provider industry itself. Now, the industry is complaining that they have to explain it.

    I would add that the complexity is intentional since it makes it impossible to compare fees charged for funds and record keeping services. Now, the industry is too embarrassed to explain what they were charging for over the past decades.

    All this sets the stage for more ETFs, index funds, and new types of mutual funds in 401(k)s. But some plan sponsors will still be on the hook to explain their plan oversight.

    It also would be ironic justice if the mutual funds that were active in the revenue sharing debacle were all tarred by this practice.  Revenue sharing is the source of conflicts of interest between financial reps and their clients, and will provide impossible to explain.  It is the seed of  an industry PR nightmare.

    In anticipation of a U.S. Department of Labor, Putnam Investments in planning to expand the amount of information available to 401(k) plan participants who are enrolled in plans Putnam administers.

    Putnam took the action in anticipation of the DOL’s planned release of final regulations on participant disclosure.  That final release is expected at the 90-day review period for the rule ends this month.

    While Putnam’s action is designed to increase transparency, the company will not be releasing the same amount of information is makes available to the 401(k) plan sponsors, according to a story posted by Investment News (“Putnam to expand info for 401(k) participants,” by Darla Mercado, Oct. 13, 2010).

    One example cited in the article said plan participants won’t have access to any information on plan adviser compensation in the new disclosures or adviser and consultant services. That’s unfortunate since it creates two levels of disclosure: one for the plan sponsor and another for participants.  It also prevents plan participants from making comparisons about plan expenses compared to other similarly-sized plans.

    Still, Putnam should be commended for taking the initiative in advance of the DOL regulations. It’s a good example of positive government regulation and co-operation in the financial services industry, and is especially important for 401(k) plans which represent a large portion of a worker’s potential retirement wealth.

     Putnum Expands Disclosures

    In a separate move in October 2010, Putnam Investments announced it planned to expand the amount of information available to 401(k) plan participants enrolled in plans Putnam administers.

    Putnam took the action in anticipation of the DOL’s planned release of final regulations on participant disclosure.

    While Putnam’s action is designed to increase transparency, the company will not be releasing the same amount of information is makes available to the 401(k) plan sponsors, according to a story posted by Investment News (“Putnam to expand info for 401(k) participants,” by Darla Mercado, Oct. 13, 2010).

    One example cited in the article said plan participants won’t have access to any information on plan adviser compensation in the new disclosures or adviser and consultant services. That’s unfortunate since it creates two levels of disclosure: one for the plan sponsor and another for participants.  It also prevents plan participants from making comparisons about plan expenses compared to other similarly-sized plans.

    Still, Putnam should be commended for taking the initiative in advance of the DOL regulations. It’s a good example of positive government regulation and co-operation in the financial services industry, and is especially important for 401(k) plans which represent a large portion of a worker’s retirement wealth.

    Previous articleAccepting the “New Normal” in Financial Marketing
    Next articleSEC Fails Investors on Fiduciary Rule
    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here