There are two issues the broker dealers are faced with that have caused these fines and rebates to customers as outlined in the article below. Most of the fines/rebates are around B/Ds selling A shares to retirement plans and charitable accounts in which they stated in their prospectus that they would waive those fees. Read more
A recent Ignites article highlighted the imminent enforcement from the SEC on “distribution in guise”. This is a complex topic our clients are faced with. Our current clients are using the insight from our analytics suite coupled with the automated expense allocation execution our Fee Management platform to solve this complex issue. We prepared this overview of the issue to provide insight for our clients on how these issues can be tackled regardless of technical platform and compliance with distribution rules can be obtained in the current complex fee marketplace. Read more
Custom TDFs are starting to become popular in larger DC plans. But do they make sense for plans with less than $1 billion? According to a report by consultants at Rocaton, the answer is yes, but only in certain circumstances.
Plan sponsors may find it convenient to choose the TDF available on their record keeper’s platform, but would a decision based on convenience (or availability) satisfy their fiduciary responsibility? Furthermore, it seems highly unlikely that one manager can be proficient in all asset categories, yet the vast majority of assets are in proprietary TDFs. So when do custom TDFs make sense?
Rocaton suggests that plans should look at custom TDFs based on demographics and employee behavior only in the most unique circumstances since existing products offer enough choice for most plans. But other factors that are more important include:
- Use of DIAs or funds on the menu that represent diverse money managers.
- Desire to use alternative investments.
- Lower fees.
Morningstar’s Janet Yang says that their analysis shows that fees are the number one predictor of success for TDFs. But what size plans can actually see significant cost savings? Research from Callan indicates that larger plans are quickly adopting custom solutions, with 22.3% offering them in 2014, up from 11.5% in 2013 — largely at the expense of record keepers’ proprietary funds. Traditional wisdom has held that custom TDFs make sense for plans above $1 billion, but Rocaton’s research shows that the threshold could be as low as $250 million — and dropping.
Though plan design and deferral rates are more important indicators of outcomes than TDFs are, advisors who want to add value should be wary of just choosing the record keeper’s proprietary TDFs or selecting funds that only use proprietary investments. There are simple solutions from record keepers out there that allow a plan to use the plan’s current menu of funds employing a third party’s glide path and asset allocation models.
Our Distribution Oversight Whitepaper is a thought piece authored by Whitfield Athey, CEO and Burton Keller, EVP, of Delta Data, that illustrates core principles to consider when designing, evaluating or upgrading an oversight program.
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In case you missed this article in today’s issue of Ignites. Looks like what they examined in the “Distribution in Guise” sweep will be covered now in regular exams of funds. This should take it down stream to some of the smaller funds as the sweep probably just hit the big fund companies. Read more