Some say it’s too early to tell. Others say it’s adding some value already. But the vast majority of 401(k) fiduciaries believe 408(b)(2) – aka the 401(k) fee disclosure rule – is the biggest summer flop this side of “The Lone Ranger.” (See “401(k) Fee Disclosure One Year Later: What We’ve Learned,” FiduciaryNews.com, July 16, 2013).
This is why I agree with the majority. To those who claim there’s been some movement toward lower fees, I say, yes, the trend has been toward lower fees for some time now. We see lower fees in two ways. First, the ICI has documented the move away from 12b-1 fees in mutual funds over the last decade or more. In addition, there’s been an overall reduction of advisor fees as advisors have come to realize you can’t charge the same amount for picking mutual funds that you charge for picking stocks.
On this latter point, I remember speaking on providing to 401(k) plans at an industry conference in Washington, D.C., about eight years ago. An ebullient attendee came up to me afterword to exclaim his agreement with my presentation. I asked him what service he provided. He said he was an investment advisor to 401(k) plans. Then he told me what he charged. It was the same I charged private portfolio clients for selecting individual securities as part of the portfolio management service I provided. I didn’t have the heart to tell this fellow I charged less than one-third to 401(k) plans for picking mutual funds for them.
Apparently, the competitive market had no problem letting him know.