Recordkeepers React to Expenses Associated With SEC Redemption Fee Rules

July 14, 2005 ( - Third party administrators (TPAs), such as retirement plan recordkeepers and administrators, are weighing options for alternative investment choices in response to a reporting requirement of a new rule (Rule 22c-2) permitting funds to impose redemption fees if they feel it is necessary to recoup frequent trading losses, McHenry Consulting reports.

The Securities and Exchange Commission (SEC) rule also requires funds to enter into agreements with intermediaries such as broker-dealers and retirement plan administrators requiring them to provide the funds with shareholder and transaction information at the request of the fund and carry out certain instructions of the fund (See  Timers’ Trading Could be Cut Back under New Rule ).

Upon interviewing various TPAs, McHenry found that recordkeepers are concerned about the additional expense that will be created as software and business processes will need to be changed to implement the new rule.   They feel that most plan sponsors will not agree to pay for the added costs.

The retirement professionals that McHenry interviewed are looking into investment products that do not have redemption fees as a solution to the problem.   According to the report they are looking at products such as:

  • Institutional separately managed account products from firms like Envestnet, AssetMark, and The Newport Group
  • Custom portfolios created by advisors and unitized by plan custodians comprised of funds, exchange traded funds (ETFs) and other assets
  • Collective Investment Funds (CIFs) offered by banks, that are regulated by banking laws instead of securities laws.

As the report notes, ETF and CIF products are growing in the marketplace and are gaining acceptance by plans sponsors and their advisors.

The complete report can be read  here .