More On Legal & Compliancefrom The Advisor's Professional Library
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Putnam Investments will offer transparent and comprehensive disclosure of fees and expenses to participants in the 401(k)plans it administers, the company announced Wednesday.
In a related development, Hilda Solis, secretary of Labor, and Phyllis Borzi, assistant secretary of the Department of Labor’s (DOL) Employee Benefits Security Administration, held a conference call on Thursday with the media to announce a final rule to improve transparency of fees and expenses for workers in 401(k)-type retirement plans.
“The rule will, for the first time ever, ensure that all workers receive and have access to the information they need to make informed investment decisions about their 401(k)-type plans,” DOL said in a statement.
Putnam’s new disclosures will be available online through its plan participant website later in October, the firm said. These will provide participants with full access to real-time information about their total fund expense ratios, any transaction fees associated with their plan that they might possibly incur and other information that will enable them to determine their own individual costs. The disclosures will address all major types of costs related to Putnam-administered retirement plans, including the following:
- The expense ratio associated with each investment option in the plan, converted into an actual dollar value per $1,000 invested;
- A list of transactions that participants might make and the transaction fee associated with each; and
- Any fees related to services that employees might incur based on how they use their plan, such as fees for managed accounts or online advice.
The disclosures will also list the services that participants have access to through their plan, including automatic plan features that help them save; informative educational programs; comprehensive, easy-to-read statements; Putnam’s Lifetime IncomeSM Analysis Tool, which puts estimated monthly retirement income into context; and a broad range of investment choices that allow participants to build a retirement savings strategy that is right for them.
Putnam said the disclosures would be accompanied by a video tutorial that addressed such topics as assessing plan value, the employer’s fiduciary responsibilities as they related to the value and fees of the employer’s plan and the different types of fees that participants typically incurred and an explanation of what each charge was for. The disclosures are intended to provide important context to help participants understand the fee information provided.
Edward Murphy, Putnam’s head of defined contribution, noted that because every retirement plan provider makes available a different set of capabilities, features and services, only a clear explanation of fees and expenses, aligned with the services available, will enable participants to properly understand the value that their plan provides them. Likewise, he said, such transparency will help sponsors and their intermediaries to identify the optimal plan for their participants’ specific circumstances, enabling them to carry out their responsibilities as fiduciaries under the Employee Retirement Income Security Act.
In May, Putnam announced new disclosures for the plan sponsors it serves, covering all fees charged: investment management, servicing (including advisory fees) and recordkeeping.
In making the announcement, Robert Reynolds, Putnam’s president and CEO, said: "Full, clear disclosure is a vital element in building a stronger retirement savings system for America… Plan sponsors and participants need detailed, useful, actionable information to make the right decisions. Transparency on fees can help plan sponsors identify the best value for their particular circumstances and plan participants understand the value that their plan provides them."
Reynolds, who joined Putnam in 2008, has been a strong proponent of greater transparency—though some have put a more cynical spin on his motives for moving Putnam out front in this endeavor. In a June 10 MarketWatch commentary, Robert Powell acknowledged the cynicism, but said that whatever its reasons for announcing disclosures, “Putnam will force 401(k) plan providers to follow suit, especially once plan participants and sponsors start demanding it from their current providers.”