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Whitepaper Discusses Fee Reasonableness of Advisers

“On April 10 the focus will expand to cover IRAs and the burden will be on the advisers to prove the reasonableness of their fees,” notes Fred Reish of Drinker Biddle.

By PLANADVISER Staff editors@strategic-i.com | October 20, 2016

Fiduciary Benchmarks has published its newest whitepaper, prepared by Drinker Biddle, about adviser fee reasonableness.

In the whitepaper, Fred Reish and Bruce Ashton of Drinker Biddle, discuss fee reasonableness and the financial adviser's obligation to the individual retirement account (IRA) and 401(k) plans they serve.

With the new Department of Labor (DOL) conflict-of-interest regulation, there will be heightened scrutiny on plan fees. While plan sponsors are not relieved of their obligation to review fees and compensation, financial institutions and advisers now have a new obligation under their best interest contract exemption (BICE) and other exemptions to determine their fee reasonableness.

“It’s a whole new world. Virtually every financial institution works with IRAs. If you ask any of them if they know how to benchmark an IRA, the answer would be no. They will need sound legal guidance and proven technology providers to help solve these problems” says Tom Kmak, co-founder and CEO of Fiduciary Benchmarks.

As Fred Reish of Drinker Biddle points out, “while the concept of 'reasonable compensation' is familiar to retirement plan advisers, it is new to most advisers who focus on wealth management and IRAs. But, on April 10 the focus will expand to cover IRAs and the burden will be on the advisers to prove the reasonableness of their fees. As a word to the wise, advisers should have industry-based documentation in their files."

How to ensure this is happening is tricky though. And most importantly, determining how those fees relate to the quality, service and value being provided by the financial adviser to the plan or IRA holder can be even harder to evaluate.

The whitepaper will help clarify the changing roles and expectation such as:

  • Who has the job of determining whether an adviser's compensation is reasonable―the plan sponsor, the IRA owner or the adviser?
  • What has changed in regards to the obligation of a fiduciary adviser to a plan or IRA?
  • Has the obligation to determine the reasonableness of compensation shifted from the plan sponsor to the adviser or has it become a dual obligation?
To download the whitepaper, go to http://www2.fiduciarybenchmarks.com/Fee_Reasonableness.