IMHO: Not-So-Quiet Period
Not so this past week, with the announcement of two major retirement industry acquisitions, a significant update on fee disclosure regulations, and a ruling in a revenue-sharing case that could have far-reaching implications.
On the two industry acquisitions, LPL’s absorption of National Retirement Partners (NRP) will surely be of most interest to the adviser community (see LPL Acquiring National Retirement Partners). LPL, which had only recently launched an IPO (and is thus literally in a “quiet period”), has struggled for some time with its retirement plan focus, while NRP has had its own share of issues in the wake of the recent financial crisis. LPL’s backing should certainly prove to be restorative for NRP’s positioning, and it’s hard to imagine that a newly constituted retirement-focused unit at LPL under Bill Chetney’s leadership won’t provide a clarity of focus for LPL’s efforts in this space.
Plan sponsors may feel a greater immediate impact from Aon’s acquisition of Hewitt (see Hewitt to Merge with Aon), the rationale is that the former’s middle-market product set (especially its insurance lines) will find room to grow in Hewitt’s predominantly large-client base, while Hewitt’s large-plan expertise will be able to find new applications in Aon’s target markets. Those notions inevitably look logical on paper; time will tell if the firms’ cultures and client approaches will assimilate. That said, the new partners are projecting a LOT of cost savings alongside a $5 billion merger—and in a people-intensive business.
As for the final release of the 408(b)(2) fee disclosure regulations, the wait appears to have been worth it (see DoL Issues New Fee Disclosure Rules). I am admittedly not yet all the way through a careful reading of the interim final package, but the removal of a written-contract requirement surely meets the common sense test, while retaining the impact of written disclosures.
Similarly, the approach on disclosure—a reliance on full disclosure rather than the, to my eye, more limited conflict-of-interest focus of the prior regulations, should provide plan fiduciaries with more information, even if it does bring with it a potentially greater effort in sifting for those conflicts. Finally—and this is the provision almost certainly likely to draw the most industry focus—the DoL has opted to require that “certain providers of multiple services” disclose separately recordkeeping costs.
This was one of the more controversial provisions in the earlier proposals, and the Labor Department at that time tried to craft a “Solomonic” yet practical solution for those bundled providers who continue to claim that they are simply unable to break those costs out of their integrated delivery models, by basically requiring that unbundled providers disclose those costs, while those who couldn’t (or said they couldn’t) needn’t.
I am encouraged that this new proposal does not make that differentiation. In response to my question on the issue last week, Assistant Secretary of Labor Phyllis Borzi noted that they had heard from a number of sources during the course of the process and comment periods that many plan sponsors still are under the impression that recordkeeping is “free,” and they felt it was necessary to help disavow them of that notion. Back in the day when recordkeeping was routinely priced as a discrete service, it generally was found to constitute about 20% of the total costs for a DC plan; so, IMHO, it’s certainly large enough to warrant a separate disclosure.
Ms. Borzi noted that those who may (still) find it difficult to comply with the measure have a year to do so. Personally, I would argue that they should have seen it coming before now.
As for that revenue-sharing case, well, we’ll take a look at it next week—unless, of course, we have another not-so-quiet week.
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