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Confusion Over New 401(k) Transparency Rules Could Benefit Wealth Managers Willing to Explain Them

Labor Department rules calling for wealth management advisors to provide specific information on 401(k) plan fees and services have been a long time coming. In fact, the last time these rules were anticipated by the financial advisor community, a young senator named Barack Obama had just been elected president.

So, what will actually happen when 401(k) fee transparency rules go into effect on July 1st? It’s a question on the minds of many advice givers these days.

Shop for better terms

The changes are widely expected to prompt some plan sponsors to shop their retirement plans for better terms. Then, too many retirement plan experts at client firms could come to rely even more on "trusted" advice givers able to roll with the changes and help them map out the future, experts say.

This rule calls for service providers to disclose an employer's information about retirement-related services they offer including the fees and compensation they receive. The intent is to make it easier for plan fiduciaries to assess the reasonableness of the fees paid.

Some fees may come as a shock

“For many participants—and even some plan sponsors—seeing the laundry list of investment management, administrative and advisory fees, and prices may come as a shock,” reports Financial Planning Magazine, observing that last year, an AARP survey showed that more than 70 percent of plan participants think that they don't pay any fees for their company retirement plan.”

But there will be plenty of opportunities for financial advisors to shine, assuming they’re prepared, says Rob Wolfe, who heads up United Capital’s Fort Lauderdale, Florida office.

“Some trustees will be so angry [at what they’re being charged] they may shop their plans,” he tells eFinancialCareers. "However, the changes will also allow some advisors to negotiate fees downward or increase their services to be more in alignment with the fees they’re being charged.”

Advisors should explain the fees

David Leali, a wealth advisor at United Capital, says that plan sponsors have been asking his firm to help devise written communications to help explain fees above and beyond the materials the plan providers are preparing in advance of the July 1st Labor Department deadline.

Beyond such assistance, Guy Hocker, president of First Allied Retirement Services—the sister firm of San Diego, Calif.-based broker dealer and Registered Investment Advisor (RIA) First Allied Securities, Inc.—says clients will be looking for “a trusted voice” to help them make sense of the transparency rules.

Clients will be overwhelmed

“The bottom line is clients are going to be overwhelmed with paperwork and perhaps with questions from participants," says Hocker.

“There certainly is going to be a segment of the participant world that’s going to be highly questioning of the fees on 401(k)s, which they thought were either paid for by employers or did not exist at all,” Hocker explains. Advisors able to help employers deal with such problems will clearly have a leg up, he says.

Says Leali: “My sincere belief is that full disclosure will allow plan sponsors to make more informed comparisons of plan provider alternatives.”

In fact, “We are recommending to the plans we advise to reprice on the open market after the fee disclosure rules are in force,” he adds.

AUTHORJanet Aschkenasy Insider Comment

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