Retirement Watch

Have no fear of DOL fee disclosure regs

No one likes to talk about money, but advisers who embrace the process can help clients

Oct 16, 2011 @ 12:01 am

The late TV journalist David Brinkley once mused that a successful person is someone who can build a foundation from the bricks that others have thrown at him or her.

He could have been reporting on today's retirement plan marketplace.

Financial advisers have been trying to figure out what to do about the bricks flying their way in the form of new disclosure requirements on commissions and fees for 401(k), 403(b) and 457 retirement plans. Although everyone favors greater transparency, conversations about money can be awkward and potentially tense, even for the best of relationships.

But that is the view from the “glass is half empty” crowd. Advisers who choose to view these new developments through David Brinkley's eyes — as opportunities rather than challenges — can build their own foundation for success.

The two bricks that advisers are most worried about come from the Labor Department: Regulation 404(a) and Regulation 408(b)(2).

Starting May 31, DOL Reg 404(a) will require plan sponsors to disclose upfront the fees paid by retirement plan participants, including expenses for fund management, administration and record keeping.


Although sponsors and providers already make this information available, it hasn't always been easily accessible by employees who contribute to their employer's retirement plan. Some participants even assume that they pay no fees.

Starting April 1, DOL Regulation 408(b)(2) will require advisers and others to disclose their commissions and other compensation to retirement plan sponsors. Although the April Fools' Day date may be seen by some as an unfortunate coincidence, the wiser adviser will embrace this new requirement as a way to highlight his or her value.

And that is the foundation for this new opportunity. Advisers will need to put on their consultant's hats as plan sponsors and their employees look for help in sifting through the new regulations, figuring out what they mean and, ultimately, what action to take as a result.

Expect lots of questions from plan sponsors. Of course, sponsors also will want to know more about what services they get for the commissions they pay advisers for compliance, especially the disclosure of fees to plan participants.

So how did Mr. Brinkley handle having to announce his salary on the air to viewers? Well, that is one brick that the newsman never had to dodge.

But Mr. Brinkley no doubt would agree that everyone deserves to be paid fairly for their hard work

Advisers play an important role in helping business owners evaluate, choose, implement and run their retirement plans. Any disclosure of commissions for this work should go hand in hand with a discussion about the value of an adviser in helping plan sponsors make good decisions about providers, investments, plan designs, participant education and other continuing service.

The talk about compensation should be coupled with a review of the client's goals and objectives for the retirement plan, an evaluation of its effectiveness and an assessment of next steps. If the plan is falling short of its goals, it is a perfect time to review potential solutions, including changes in plan design to boost participation by employees, increase contributions or enhance the owner's retirement nest egg.

As part of the discussion, review whether the fees that plan participants are paying are reasonable. Advisers can help benchmark fees and performance and, as part of the process, potentially make changes as appropriate.

But simply spread-sheeting fees may not tell the whole story. Sponsors need to understand what they are getting for their fees.

Examine the relative effectiveness of the provider's installation and education programs.

Does the provider conduct on-site seminars with plan participants? What other support is available?

Advisers are needed to provide perspective.

The new disclosure requirements for retirement plan fees and commissions would be seen as a positive by Mr. Brinkley, as they would by any veteran journalist. Information empowers people and, ultimately, can lead to better decisions.

Advisers can help plan sponsors and participants make better decisions by helping them sort through this new age of information. Those who do will fortify their client relationships and build a better practice, brick by brick.

E. Thomas Foster Jr. is national spokesman for qualified retirement plans at The Hartford Financial Services Group Inc.

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