Research, AdvisorOne to Cast Light on Murky Fee Disclosures

Financial advisors—as well as plan sponors, third-party administrators and record keepers—are invited to submit up to three different service provider disclosures, which Dalbar will analyze at no cost to those making the submission. Submissions can be e-mailed to [email protected].

The financial services market research firm’s analysis will consider the transparency of the disclosures with respect to the services provided, the value of the services to participants and the total participant costs. Additionally, the analysis will evaluate the clarity with which potential conflicts of interest are presented as well as overall helpfulness and understandability of the disclosures.

The ERISA rule’s purpose of protecting investors from service provider abuse through clear disclosures can be frustrated by service providers who deliver that information in an opaque way. For example, a service provider might list fees in such a way that the plan sponsor has to go to a variety of sources (such as fund information supplements or service agreements) and then add various results together.

In contrast, a transparent plan will break out the costs for plan sponsor services (and describe those services), employee services (and describe those) and administrative services (listing those), then convey the financial impact of those services and costs in  a way that is easy for plan sponsors to evaluate and compare with other plans.

That kind of transparency would enable plan sponsors to carry out their fiduciary duty and ensure that the services offered are necessary, reasonable and cost effective. The fee disclosure transparency ratings, when published, will provide advisors with concrete basis to recommend a service provider to their plan sponsor clients.

“The plan sponsor community has an obligation and has an interest in understanding what the fees and costs are despite the opaqueness of some of the disclosures,” Harvey says.