"The Truth Behind Hidden Fees in 401K Plans"

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lambda's picture
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Joined: 2005-07-20

Did anyone get to watch this on Bloomberg last week?  Is it an issue FAs bring up often to prospects has part of their "second opinion"?  If so, how do you guys use this info to win them over as clients?

DodgerDraftpick's picture
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Joined: 2006-12-24

Fees are always an issue with 401 (k)  plans.  The problem is though that the mentality of "if it ain't broke don't fix it" will come in to play.  401 (k) is all about timing and if the plansposor is looking to do a review/benchmarking of their plan.  It doesn't matter is it is a small $1 million plan or a mid size $65 million dollar plan.  You should always incorporate a full fee review when you look at a plan as well as ask the plansponsor to find out how much compensation the broker is making.  You would be amazed how some plansponsors react when realizing the broker they haven't seen for three years is making a 100 beeps.

Broker24's picture
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Joined: 2006-10-12

I would say less than 1% of clients know that their 401K plan probably buries some additional fees inside the mutual fund expenses.  Less than 1% realize that they are paying a wrap if they are in a group annuity.  Most don't even know the plan is a group annuity, nor do they know what one is.  Most of them pretty much only know what they pay out of pocket on an invoice (i.e. TPA fees, admin fees, etc. that are billed separately).
 
However, I find the bigger issue is service/education and investment options (service being the bigger one).  Most small plans are under-served.

troll's picture
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Joined: 2004-11-29

B24
From my experience, you are dead on about the annuity wrap fees and the lack of service. The thing is tho, if you know what you are doing, and you find out they are with an insurance co, nd its an annuity platform, that gets you in the door. The service issue wins you the business. I had that happen. I got the appointment when i got them to tell me they are with an ins co. Three months later i closed the deal for a $2,000,000 takeover. At the meeting when we signed the papers, they told me the main reason they did it was that the genius that originally sold them the plan 8 years earlier, hasnt been seen or heard from since.

Broker24's picture
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Joined: 2006-10-12

"they told me the main reason they did it was that the genius that originally sold them the plan 8 years earlier, hasnt been seen or heard from since."
 
 
I hear that often as well.  I was actually pretty shocked when I started going after 401K's how bad the service is.  But then I thought about it and realized that, as an employee at previous companies, I never once saw someone from the 401K company(s).

Akkula's picture
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Joined: 2008-02-17

Broker24 wrote:
"they told me the main reason they did it was that the genius that originally sold them the plan 8 years earlier, hasnt been seen or heard from since."
 
 
I hear that often as well.  I was actually pretty shocked when I started going after 401K's how bad the service is.  But then I thought about it and realized that, as an employee at previous companies, I never once saw someone from the 401K company(s).
 
I worked with a ton of smaller 401k plans ($1-5 million).  For most, the guy that sold them their health insurance policy was also the broker on the 401k.  Most of the time, these guys were AWOL and left the service provider to do it all while they still collected a check.
 
As for the Bloomberg piece, some of it was really true regarding how fees are hard to uncover in many 401k plans.  The only part I thought was suspect was the section that talked about the "hidden brokerage fees."  They were talking about all the money different mutual funds spend on commissions to place trades for their portfolio.  To me, this argument is a bit silly since that is an issue that affects mutual fund just by nature of how a mutual fund works.  It doesn't really have anything to do with retirement plans exclusively and those commission will just reduce the returns on the fund and are therefore pretty transparent when the funds' performance are compared to other funds in their class. 

lambda's picture
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Joined: 2005-07-20

Have any of you guys ever had a problem figuring out what all the 401k fees were, either due to the sponsor not cooperating or the plan was just too complex?

SailFast79's picture
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Joined: 2008-04-01

it's not going to be that way for much longer.  I'd say the Two biggest developments in ERISA are potential fee disclosure reg changes and the Supreme Court recognizing a private right of action against an administrator.  I wonder if providers will continue to provide fiduciary indemnification features at the same cost given the increased potential for liability?  Thoughts?

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