That quote, used repeatedly by my late Uncle John for crossroads both small and large, is an inside joke among my family members, but during a discussion with Kevin Watt, senior vice president of Security Benefit’s defined contribution group, it seemed to me like an appropriate opening for recently received fee disclosures.
“We are concerned about a race to the bottom with fee disclosures,” Watt said. He noted that Security Benefit is in favor of letting everyone know what they are paying for, but it is worried the immediate reaction of plan sponsors and participants will be focused on cost rather than value.
Plan sponsors should look at the value of what they are paying for, and whether they are getting services from providers and advisers that are reasonably priced. If plan sponsors decide to change providers based on only low-cost, they will harm millions of Americans, according to Watt.
Tom Kmak, CEO of Fiduciary Benchmark, agrees. He said the firm has seen many cases where plans with low fees also had participant success measures that were below average. He noted that the Department of Labor (DOL) regulation clearly requires plan fiduciaries to look beyond low fees to items like services and fiduciary status to determine fee “reasonableness.” In fact, the final 408(b)(2) regulations mentioned the word reasonable or reasonableness nearly 50 times. “Looking at fees without looking at value is a meaningless exercise,” Kmak stated. Watt said Security Benefit is concerned that if plan sponsors rush to slash fees, the first cut will be the advisers to their plans. He warned that would be the wrong reaction because, unless they want to do the research themselves, advisers can help plan sponsors with the fee benchmarking and help decide what value the plan sponsor is receiving from providers, and whether fees are reasonable.