“We really only do custom fee benchmarking with our clients,” said plan adviser Barbara Best, principal at Capital Strategies Investment Group LLC, during a panel session at the 10th annual PLANSPONSOR National Conference. “For the most part, you can drive a truck through the results of public benchmarking.”
Best’s firm advises on some $10 billion in plan assets and seeks to deliver a holistic approach to retirement plan services. She says working with this book of business clearly shows customized and thoughtful plan fee benchmarking leads to greater understanding of plan operations and plan success—and that choosing the wrong resources for fee benchmarking can actually decrease understanding of whether a plan is getting a good value for administration and investment services.
Also on the panel was Dan Peluse, director of corporate plan services at Wintrust Wealth Management, a firm touching on $1 billion in qualified plan assets. He agreed that fee benchmarking reports that compare a given plan sponsor’s pricing with a general industry average—or even a random sampling of plans from across the defined contribution (DC) universe—can’t effectively demonstrate whether or not a sponsor is getting a good deal on fees.
“You need to be folding certain assumptions about your plan into any fee benchmarking that you’re doing,” Best noted. “One of our plan clients has a decentralized payroll system, for example, and that has huge implications for the complexity of managing deferrals and administration in a compliant way. That’s the type of thing that has to be baked into fee benchmarking for it to be truly informative from the price-value perspective.”
NEXT: Complex plans might call for an RFP.
Depending on the complexity of a plan, Peluse suggested conducting a full request for proposal (RFP) to get a pulse on how current fees align with what may be available in the plan services marketplace.
“I absolutely agree there can be serious accuracy and comparability issues with public benchmarks,” Peluse said. “The only way to get the real picture of whether you could get better pricing for the plan services you require is to go out to the market and see what the market is yielding.”
Peluse said he understands many plans won’t have the resources to do a full RFP each year, but he believes all plans should do this type of RFP-driven fee analysis at least every three years. During the interim, customized benchmarking reports can be helpful, he added.
Best suggested that the frequency of RFPs will depend on other factors—such as firm growth or longer periods of strong returns, which can quickly push a plan into new territory in terms of its assets.
“It’s a lot of work for sponsors, there’s no doubt,” Best said. “One bright spot, given the increase in fee disclosure, is that providers are more aggressive today in terms of pricing, and it’s leading to better deals and service for clients.”
Given all this, what does a good benchmarking report or RFP look like? Peluse urged sponsors not to settle for very high-level comparisons that don’t dig down into the specific pieces of running a plan.
NEXT: Income products can be somewhat murky in benchmarking.
“We work with our clients to segregate all the costs and understand each piece of running the plan individually,” Peluse explained. “What’s the fee for recordkeeping? What’s the fee for advisory services? What’s the investment management fee? These are all distinct and should be treated that way. We like to lift up the hood and look across all these cost components so that we can get the best deal on each.”
Both Best and Peluse observed that the use of guaranteed income products can create a lot of gray area during fee benchmarking. “It’s hard to do apples-to-apples comparisons in a lot of cases,” Peluse said, “so working with a trusted adviser partner to do this can be really helpful for sponsors.”
Best also warned that, “when you’re doing an RFP and you get the pricing back, you need to ask for all the transaction fees and incidental fees, too. Some providers may charge fees you’re not thinking about—fees for outstanding loans, for example, which can have a big impact.”
The panelists concluded the session, which was moderated by Attila Toth, partner and co-founder of Portfolio Evaluations Inc., by describing the process of sharing fee reports with an incumbent service provider.
“If they come out on top, that’s great, and you have a documented process that you can point to, to show you have considered the fees and value you’re getting,” Best said. “But what happens if the incumbent doesn’t come out on top? We don’t show them which providers said what, but we do give them the exact results. The incumbent almost always will come down to meet you and the range you need. You can really have a strong tool in these negotiations if you have the customized benchmarking or a full RFP report that shows what the current marketplace is doing.”