What’s in a Fee?

In the lieu of proposed fee disclosure requirements from the Department of Labor (DoL), Spectrem Group took a look at the understanding plan sponsors have about the fees they pay providers and advisers and consultants. It turns out plan sponsors are more knowledgeable about the fees they pay than they were in 2005, but the study also suggests that many sponsors have hesitations about what they pay their adviser or consultant.

Most surveyed plan sponsors said they use an adviser or consultant to assist them in selecting and evaluating plan providers (70%), with it being pretty evenly split between commission-based and fee-based advisers (34% and 31%, respectively), according to the study.

Among sponsors who are able to estimate what they pay their adviser, the largest proportion (35%) say they pay 25 basis points or less. Two-thirds of sponsors say they pay an annual fee to their adviser, and this is pretty consistent across plan sizes. However, 19% of sponsors aren’t sure whether they pay a one-time fee or an annual fee.

Understanding of Fees

The overwhelming majority of sponsors receive a written fee disclosure statement from their advisers/consultants (88%), as well as their providers (84%), according to the study. When sponsors were asked how confident they were about their understanding of the fees they pay to their adviser, only 19% were “very confident.’ The largest proportion of sponsors (61%) ranked their confidence a three or four out of five. One-fifth of sponsors is not confident at all or only have a little bit of confidence.

Sponsors that are financial officials as opposed to human resources officials were more likely to feel confident about their fees, as were sponsors at larger plans (that likely have more sophisticated abilities to measure fees), according to the study. HR professionals were also less likely to be satisfied with the value they were getting for the fees from an adviser.

Across plan sizes, only 17% of plan sponsors feel “very satisfied’ that they receive full value for the fees they pay to their adviser or consultant. The report says this has something to do with their lack of understanding of what they are paying for.

A third of sponsors believe their adviser or consultant can influence their compensation based on fund recommendations. In the small plan market (less than $10 million), the number is a little lower at 20%. Spectrem says that if something “as easy as fund selection’ can effect compensation, than sponsors probably aren’t as informed of the fees they pay as they think they are.