Bryan Binkholder Discusses the Upcoming 401(k) Fee Disclosures: Will the Average Investor Even Take Notice?
It’s been a long time coming, but after more than four years of regulatory starts and stops (mostly stops), the Department of Labor has finally set the dates for two separate sets of fee disclosure regulations, and they’re coming up quickly. In case you haven’t heard, the proposed purpose of the new regulations is to ensure that plan fiduciaries have the necessary information to make informed investment decisions and that all fees, — yes, ALL fees, are exposed AND explained to plan participants.
There’s a lot that can happen here, and I’m interested to see how it all plays out. Currently, brokers and financial salespeople are calling meetings, discussing the possible aftermath and exactly how the questions from plan participants will be handled and answered. Of course, they want to get all their ducks in a row and all their stories straight before the possible tidal wave of questions arrive.
Some mutual fund managers are suggesting that company-wide meetings are the answer. Bring all the employees together before the fee disclosure deadline and begin to explain the new regulations, –a sort of a question and answer round table, or maybe a video presentation, power point, or even a well-versed outside representative who can confidently explain these changes.
As I read and hear rumblings about the way the fund managers and the employers are scrambling, it’s pretty comical. First of all, let’s look at the situation realistically here. I don’t have any idea what these so-called meetings will entail or how the fund companies will try to explain away the fact that they’ve been siphoning money in a variety of unnecessary and exorbitant fees all of these years, but I do know this…Somewhere, in some workplace meeting, some random employee is sure to pose the question, “So, why didn’t you tell us about these fees before? Why did it take an actual regulation to bring you to the point of disclosure?” If the industry thinks for a minute that this realization by the average 401(k) plan participant isn’t going to cause waves of mistrust and dissatisfaction, they are in for a rude awakening.
Predictions of ‘Business as Usual’ After Fee Disclosures
Amazingly, that’s what they are believing, according to numerous reports. The average investment company, broker, and plan provider (as delusional as it sounds), are counting on ‘business as usual’ after the full fee disclosures. Disgruntled employees? “No way!” they say. Here are actual excerpts from recent articles smugly assuring that all will be well because the “average investor/saver just won’t take the time to worry about it.”
An article entitled, Will Savers Yawn at 401(k) Fee Disclosures?
“No one is sure how participants will react. Robyn. Credico, defined contribution practice leader at consulting firm Towers Watson, is betting that most will yawn. “We know participants hardly read anything and this is fairly complicated,” she says.
According to reports released by the AARP Public Policy Institute, most plan participants are often unaware not just of the amount of fees, but actually unaware they are paying them at all. With this in mind, these smug comments by mutual fund companies amaze me.”
Here are a few more:
Pensions & Investments
An article titled, Wells Fargo: Slight Effects Foreseen From Fee Disclosure Rules published a survey of “likely outcome” opinions. The survey was directed toward defined contribution plan executives by Wells Fargo Institutional Retirement and Trust. When asked the likely outcome of the new fee disclosure regulations, the survey participants had these responses:
- 49% said plan participants would just be confused by the regulations
- 48% said the disclosure would have little impact on plan participants
“If you look at participant education in general, it’s been a challenge because inertia rules,” said Joe Ready, co-director of Wells Fargo Institutional Retirement and Trust, in an interview. “Although we think there will be some participant action (based on the fee disclosure rules), we think it will be limited.”
Yet another article, entitled, When 401(k) Fees Become Transparent takes the same ho-hum approach:
“Michael Falcon, head of retirement services for J.P. Morgan Asset Management, thinks that a small percentage of plan participants may read and respond to the fee disclosures, perhaps questioning what some may consider to be excessive costs.
But he thinks that the majority of participants, already inundated with plan information, are likely to ignore the added disclosure — much the way that many Americans seem to disregard nutritional labeling in an era of epidemic obesity. Fee disclosure can be meaningless without context, Mr. Falcon said.”
At best, investment firms and fund companies feel there may be a slight wave of interest, followed by a lack of time to fully understand the fees, –at worst, the companies feel the event will blow by like just another day.
What Are YOU Going to Do?
If you are a plan provider or plan participant, are you going to allow the busyness of the day and the “feeling” that it’s too difficult to understand to keep you from learning the best investment strategies? Are you going to prove that the opinions of the investment companies are right on target?
The time is now. I invite you to access my website The Financial Coach Show, and take advantage of the free resources available to you. It’s your money and only you can stop the madness of the industry. There is a smart way to invest, but unfortunately, 401(k) plans are not one of them.