Matt Pierce quoted in RIABiz article about 401(k)

Lisa Shidler of RIABiz asked our opinion about revenue sharing fees in 401(k) plans and how plan expenses are split between participants.  It’s a complicated issue for plans, plan sponsors and RIAs. We recommend that you read the article, “RIAs join move to right a 401(k) wrong: Lopsided plan expenses — a non-DOL issue“.

The basic issue is that revenue sharing fees are built into some of the mutual funds in a plan.  The participants who select these funds pay for the administration of the plan, and those who do not select the funds, do not pay for administration.  That doesn’t seem equitable.

One of the reasons we like to use ETFs in portfolio construction is that many of the hidden costs of owning a mutual fund are not present.  When a mutual fund’s expenses include a fee for plan administration, and an ETF does not, there is incentive for a plan administrator to select the typically higher cost fund.

Record keepers, plan administrators and their advisors all perform valuable service to retirement plans and should be fairly compensated. Employees will always bear the expense of plan administration whether the company pays the plan or the funds pay the plan.  But it doesn’t seem right for some employees to pay for plan administration simply because of the fund they choose.



Stephen Winks  Sep 20 2012 at 9:50 PM

Great observation by Matt Pierce.

Roy Van Til  Sep 21 2012 at 2:21 PM

As always, Matt Pierce of Island Light Capital states the truth about the financial arena with clarity and succinctness. His periodic commentaries are also extraordinarily well-written and instructive.

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