Mandated retirement plan fee disclosure has been in effect for only a few weeks, but plan sponsors are already bailing on costly service providers.
The much-ballyhooed retirement plan fee disclosure to employers, which went into effect July 1, requires that record keepers, third-party administrators and other service providers to divulge their fee data.
Similar details must be shared with plan participants starting Aug. 30.
Although plan sponsors have just begun receiving their disclosure statements, some are unhappy with the fees they are paying, particularly the cost of insurance for group annuities.
“We changed over one client who was in a group variable annuity that cost 1.39%, switching over to
Fidelity Investments,” said Brian T. Niemann, president of Wealth Management Group LLC. “It wouldn't surprise me if we had a few conversions.”
Although everyone is focusing on the participant fee disclosures that will be coming up at the end of next month, the disclosures to plan sponsors are what will really create waves, financial advisers said. Employers dissatisfied with the services they get for the fees they pay are ready to make changes.
Stephen D. Wilt, senior vice president and adviser at Captrust Financial Advisors, said six unsolicited employers looking to dump their provider have come to his firm within the past three weeks.
One of those employers has already decided to sign on with Captrust, he said.
“Six to 10 new clients in one year is a good year,” Mr. Wilt said. “Last week was a week of unsolicited opportunities coming in the door.”
SEEKING BREAK-UPS
In some cases, the prospective clients are looking to break up with advisers that don't specialize in retirement and haven't been attentive to the plan's needs.
Plan sponsors have a duty to ensure that the fees are reasonable.
“They have an obligation to look around,” Mr. Wilt said of the sponsors.
The firms that he has been working with for new business include The
Charles Schwab Corp., Fidelity and T. Rowe Price Group Inc., he said, while some smaller plans have been signing on with Great-West Retirement Services.
The Labor Department recently an-nounced improved procedures to protect plan sponsors from fiduciary liability if a service provider doe not comply with disclosure requirements. Employers can notify the department when a provider fails to submit the information.
Still, not having that information in the first place is enough for some plan sponsors to walk away from their provider, advisers said.
“It's viciously competitive. If you're with a provider that hasn't been proactive, you have an opportunity to negotiate your fees and benchmarking,” Mr. Wilt said.
“Some record keepers are less prepared than others,” said John Wilcox, an adviser with Mayflower Advisors LLC.
“They're not prepared [for fee disclosure], or they're not communicating that to their client,” he said. “If the vendor isn't ready, then maybe we should look elsewhere.”
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