Application Aims to Give Plan Sponsors Fee Negotiating Power

Josh Itzoe from Greenspring Wealth Management says FeeMetri(k)s' goal is to make retirement plan sponsors fee experts in five minutes.

Greenspring Wealth Management has introduced FeeMetri(k)s, a technology offering (with plans to spin it out as a separate company) designed specifically for plan sponsors (not advisers, recordkeepers or TPAs) that monitors and benchmarks 401(k) fees.

“We’re excited about it! We spent the past eight or nine months to build an application to really help plan fiduciaries fulfill their obligation to make sure fees are reasonable,” says Joshua P. Itzoe, partner and managing director at Greenspring Wealth Management, Inc. in Towson, Maryland. “Our goal is to turn them into fee experts in five minutes.”

According to Itzoe, the retirement industry makes comparing fees really complex. “Even in the past five years of having fee disclosure, plan sponsors and participants don’t really understand the economics of the retirement industry. It’s in the industry’s best interest to comply with fee disclosure regulations but not give a clear eye on fees and expenses,” he says.

Millions of dollars a year are wasted because there is no type of contextual transparency, Itzoe contends. “There is no kind of database that is accurate, up-to-date and robust, to help companies make decisions related to fees. Even a specialist consultant firm doesn’t have tools other than an extensive benchmarking process,” he says.

“Our solution makes the process simple and fair and puts the power of pricing intelligence in the hands of plan sponsors, so they can do a better job of negotiating fees and holding the industry accountable,” Itzoe adds. “In our consulting practice, we are talking with clients about not only monitoring fees, but taking action.”

He expects FeeMetri(k)s will be disruptive in the industry, but ultimately will save millions of dollars a year, mostly paid by participants.

NEXT: Features of FeeMetri(k)s

A plan sponsor that licenses the application sends Greenspring recent 408(b)(2) fee disclosure statements, which the company uses to put data into the system. On an ongoing basis, plan sponsors provide total assets of the plan, the number of participants, and changes in the fund lineup, if any. The plan sponsor can send that data or connect Greenspring with its recordkeeper to get the data.

“We recommend plan sponsors update asset information and participant count every quarter, but it could be more or less frequent,” Itzoe says.

When the plan sponsor first signs on to the application, they see a dashboard which shows the total fees for the plan and gives the plan sponsor a risk grade. “We think of risk in two ways: first are fees a target for litigation over fiduciary breaches, and secondly do fees show a potential for plan and participant success over time,” Itzoe notes.

The grade is derived from a comparison of peer group data. Itzoe explains that a plan with an A+ grade is in the 90th percentile of its peer group. “If a plan sponsor has a ‘D’ grade, it has some work to do.”

The application also projects what fees the plan will pay in the next 10 years, and compares that to what an A+ plan will pay. It also shows the savings for each participant if the plan were an A+ plan. Finally, the dashboard gives an itemization of total fees—how much are fund fees, advisory fees and recordkeeping fees.

Plan sponsors can then take a deeper dive into fee metrics on a page that gives a more detailed breakdown of fees, both in dollars and percentages, as well as the percentage and dollars that participants are paying in fees. It also shows how much the plan has in revenue sharing. Then there is a breakdown of what vendors are getting paid and what amount.

Plan sponsors can click on question marks to get an explanation of what the data is showing.

Plan sponsors can then move to a peer analysis, which can compare against plans of similar asset or participant size. The plan is compared against plans in the 25th, 50th, 75th and 90th percentile.

And a breakdown of fees for funds, advisory service, recordkeepers or third-party administrators (TPAs) can let the plan sponsor know whether it’s fund fees or other fees contributing to high fees.

NEXT: The power to negotiate

Itzoe says most companies do not run their retirement plans like their business. Fees paid by the plan are not showing on profit and loss statements, so there’s not much incentive to negotiate lower fees as there is for negotiating lower health plan premiums, which are paid by employers. He notes that participants underwrite the majority of plan costs.

So, the next feature of FeeMetri(k)s is what really gives plan sponsors incentive and information to bargain. It’s a vendor analysis, which compares the fees a plan sponsors is paying to, for example, a recordkeeper to what plans in other percentiles are paying to that recordkeeper. “A plan sponsor may find that the recordkeeper is charging lower fees to plans in the 90th percentile than it charges for the plan sponsor’s plan,” Itzoe says. “This gives plan sponsors the power to negotiate fees. A plan sponsor can go to the recordkeeper and ask, ‘Why are my fees higher than for other plans?’ This is something plan sponsors have never really had before.”

Itzoe adds that fees have been hidden by a veil of transparency. “Let’s democratize fees. The winners are the clients. Service providers are going to have to address the fees they charge.”

The application also has region and industry comparisons, so plan sponsors can analyze how they compare to similar plans in their region or industry. Lastly, there is a funds breakdown. For every fund in the plan, it shows asset class, total assets, net fund fee, revenue sharing, total fund fee, how much is retained by the fund provider and how much is shared with the recordkeeper.

The application includes a FAQs page to help plan sponsors understand the data and know how to use it. Suggestions are provided for what to do if fees are too high.

Itzoe says plan sponsors can see how fees change over time, and they can run a report to put in their fiduciary file to show a good process for benchmarking fees.

The cost of licensing the application is nominal—ranging from $250 to $2,500 per year based on plan assets. Itzoe notes that the comparison data comes from other plans in the system, so the more companies that use this, the more data it will have to benefit plan sponsors.

“Since the data is real-time, up-to-date and accurate, and not pulled from stale or incomplete Form 5500 data, it will produce more utility and accuracy,” Itzoe says.

He says a plan on the product development roadmap is to allow participants to use the tool to input account balance and see what fees they are paying. The plan sponsor can choose to provide this to participants.

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