It's been a year since the implementation date of Rule 408(b)(2), a.k.a. the “fee disclosure rule.” You might even recall the fanfare with which the industry and regulators rung in the new rule.
Now, a full 12 months later, here's the sound heard:
….
Nothing. In the months leading up to the implementation of the rule and a few months afterwards, fees were the talk of the town. You couldn't thumb through your favorite industry rag without tripping over a story about the apocalypse of fee disclosure.
Today? The only thing you'll trip over are the crickets. The silence is so loud even they aren't chirping.
There are some who insist 408(b)(2) has begun to move the needle, especially when it comes to hidden fees. However, I regularly speak to 401(k) plan sponsors and their service providers, and I've found precious little evidence the DOL's fee disclosure rule is performing as advertised. In fact, I've come to realize, if the rule has done anything, it's taught us three valuable lessons.
1) Disclosure doesn't work—especially when it occurs in a vacuum. Plan participants were supposed to receive full fee disclosure—in real dollar terms—in their quarterly 401(k) statements. I've seen many of these statements. Some of them had failed to provide the proper disclosure by the implementation date. Those that did saw their data fall on blind eyes. Simply put, plan participants were not taught how to judge the data's significance. Plan sponsors were no better off. With no Plain English template requirement, vendors were left to “disclose” their hidden fees via sacks of unrelated disclosures and printed URLs whose length would give “antidisestablishmentarianism” a run for its money. Worse, plan sponsors had no true benchmark. Which brings us to…
2) Friendship trumps fees. You may be paying your friendly neighborhood broker twice as much as you should, but, hey, isn't he the guy who bought the team a round to celebrate when you rolled seven straight strikes in the league championships? No way you're gonna ditch him for somone else, no matter what some regulator says. And this, leads us to…
3) An unenforced rule will never work. Remember how the Damocles Sword of swift DOL justice hung over the plan sponsor's head as a result of 408(b)(2)? Turns out it was a tinfoil prop. For plan sponsors to “accept” so many undecipherable statements as “proper” fee “disclosure” boggles the mind. Actually, there's hope here. The DOL has hinted fee disclosure will be at the top of its list during its coming audit season. A good test would be to sit plan sponsors down and ask them to tell the auditors exactly what fees they are paying for what services.
How many would flunk that test?
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
