SURVEY SAYS: Will 408(b)(2) Matter?

Now, those regulations have been out there for awhile now, and a number of providers have already rolled out new capabilities regarding those disclosures.   

This week we asked readers what they thought the impact would be.

More specifically, how big of an impact those disclosures might have.

Honestly, for all the commotion around the disclosures, the concern about the timing of the disclosure, and the eagerness with which many in the industry are awaiting those disclosures, well, respondents to this week’s survey seemed to be relatively sanguine.  In fact, more than a third (34.3%) went so far as to say “it won’t amount to much,” and just under 3% said it “might have been a big deal, but we’ve had enough time to prepare for it.”

On the other hand, a plurality (41.4%) said it would be a big deal for some (though not most), and another 10% said it would be a “big deal”.  Add to that the roughly 3% that said it would be a really big deal – and you begin to get a sense that – well, it might be…certainly for some.

Of course, nearly 9% admitted – “I don’t even know what this is about.” 

We also had some interesting verbatims:

Many plan sponsors have had the information available to them for years, but never took the time to pay attention.  Now that it will be packaged up, they'll finally understand that recordkeeping is not "free" and for some, it may be a bit of a wake up call.

People won't pay attention to the disclosures. They don't pay attention to anything else we send them, required or not, so why would they pay attention to this one?

It will be a big deal because no one will understand it.  It will be interesting to see if participants stop participating because it has gotten too complicated.

It should be a big deal to plan sponsors because they will be providing or have the ability to provide relevant information to participants.  It may be less of a big deal to the participants who may not understand the information or what they can do with it.

"Participant disclosure:  10% of all participants will look at it once, decide it is too much information, and never look at it again.  85% won't look at.  5% will look at it in detail the first time, then will review it periodically.  A lot of expense to justify something that may appeal to 5% of the population and 85% won't care about at all.

Employer Disclosure:  Great idea, but since the DOL only understands a thimble full of the market, and believes everything fits into a vanilla template, there are many ambiguities and different interpretations in the real world that will make 408b2 far less effective, since it won't serve as an effective tool to make apples to apples comparisons.  As that is realized, fiduciaries will sign off that it was received, but they aren't going to do much with it in the long run."

The disclosure of fee information has the potential to remake the industry.  Some providers will go out of business because their excessive charges will be revealed, and they won't be able to survive on less.

A small group of participants will be very interested and make things uncomfortable for a while. Most people will ignore the information.

Right now no one knows for sure what is being charged and to whom is getting compensated. First its going to take a lot of hard work for Broker Dealers to get their arms around just the fact that they need to identify and report on every ERISA plan they have a connection to. Moving forward I beleive that 408(b)(2) will force firms in this business to focus on best practices and results for plan participants and for those services to be tied to fair and reasonable fee's. Ultimately it will be like the sticker on a brand new car, you will know the price, the options and the expected performance of your plan. You want better performance and features you pay more.

For larger plans it won't be or do much.  For smaller plans it may shed some needed light.  However, it would be unfortunate if it gets participants more concerned about the fees than the net performance.  It's still about performance net of fees.

The best way to make something NOT happen is to put the task to a group of pandering bureaucrats.

Participants rarely take the time to read "required disclosures". Those who do are generally in a state of panic until they call their HR/Benefits rep and get the common sense translation of the officially approved bureaucratic claptrap.

Despite having clearer disclosures, most participants will not notice them, bother to read them or try to understand them.

I think it's a tempest in a teapot. Lots of storm and fury, but covering a very small area. I don't think most participants will even bother to look at the disclosure ... heck, they don't look at anything else, why would they start now?

Once again good intentions have been drowned in government bureaucracy.

Only those who read what's provided now will read what's required then...and only they will complain about nothing related.

About time.

DOL is driving a lot of time and effort to force standardization of a disclosure that does not need to be standardized, and thereby generating more reading material that will contribute to information overload at a participant level.  Its a bit like other regulatory required reporting (5500's, annual pension funding notices).  DOL's heart is in the right place, waiting for the head to catch up.

Our financial planning firm already does most business on an RIA basis with full disclosure up front to all participants and plan sponsors.  So we'll look even better!

But this week’s Editor’s Choice goes to the reader who noted that “It will be a really big deal for advisors that haven't disclosed fees in the past, and even bigger deal for those advisors that don't have any services to disclose at the same time.”

Thanks to everyone who participated in our survey!

Those looking for more information can check out:  http://www.dol.gov/ebsa/newsroom/fsimprovedfeedisclosure.html

Also https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=6442473986 and https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=6442475888