Related: Why do 401(k) sponsors still pay 12b-1 fees?

I bring this up because of another throwaway line. This one appeared in the DOL’s recently released FAQ (see “Did DOL Fiduciary Rule FAQ Just Fire Warning Shot at Target Date Fund/Index Fund Fees?” FiduciaryNews.com, November 1, 2016). To better grasp the significance of the DOL’s apparently overlooked statement, we need to return to what transpired in that post-presentation conversation I had back when everyone still thought Madoff was a brilliant investor.

So this adviser comes up to me to talk about how, despite my comment about fees, he can confidently say his clients are quite happy with his 1% AUM management fee. I didn’t think twice. That’s a fairly typical fee for portfolio management services. But then he told me what he invested in – index funds. That’s where the discussion could have become heated.

There I was, working my tail off, trying to find 25-35 stocks to buy for my clients’ portfolios. This guy, bragging about doing nothing with a “set-it-and-forget-it” portfolio of index funds, was getting paid just as much as I was.

Now I can reveal why I kept my mouth shut: I didn’t want to disclose my competitive secrets. At the time I was offering 3(38) fiduciary services. That meant picking and monitoring mutual funds (at that time they were all active funds).

I knew, in the unlikely event I would ever go head-to-head with this guy, I could easily undercut him on fees. By a lot.

You see, I knew what it cost to pick and monitor individual stocks versus what it cost to pick and monitor mutual funds. I also knew the relative effort when scrutinizing actively managed funds (which is rather intensive) versus index funds (which is actually quite easy).

I priced my services accordingly, and that meant substantially lower fees to the 401k plan sponsors that required me to provide continuous management on their mutual fund investment options compared to what individuals paid me to construct, monitor, and update customized portfolios of individual stocks and bonds.

Which gets us to the implication of the DOL’s FAQ statement. The Department actually cited a report on AUM vs. commission fees from FINRA. In of itself, the FAQ doesn’t offer a definitive answer, but it does open the up the question as to whether traditional asset-based fees might be inappropriate when the investments involve “set-it-and-forget-it” type funds like target-date funds and index funds.

There are certainly ways advisers can justify traditional fees, but there are also certainly ways class-action attorneys can justify the inappropriateness of traditional fees. We won’t know the answer until the judges rule on the eventual trials.

One thing we do know for sure: No one will be bragging about charging standard AUM fees for doing nothing.