What is it really?
Warren Buffet may have said it best - “Price is what you pay. Value is what you get.” Fee Reasonableness is the intersection where fees and value meet. As a Plan Sponsor, it is your fiduciary responsibility to only pay reasonable fees. The challenge is determining what is “reasonable”.
What Factors Make Up Reasonable Fees?
Quality + Service + Value + Extra Credit.You get what you pay for.
When conducting a benchmarking evaluation, we put FEES on one side and QSVE on the other.
is the QUALITY of the provider,
stands for the SERVICES it is delivering,
for the VALUE it supplies, and then
is for EXTRA CREDIT it may be providing
For example, if an Advisor is charging more than the median fee but, they are providing exceptional Quality, Service and Value then their fees may be reasonable. For instance, if a plan serviced by an Advisor maintains high participation rates, healthy deferral rates and is structured to generate strong retirement outcomes, then their level of Quality, Service, Value and Extra Credit may very well support a higher fee being charged.
Who is Responsible for Determining Fee Reasonableness?
For 401(k)s and other workplace retirement plans, it is the responsibility of the plan fiduciary. Often, the plan fiduciary will receive assistance from their service providers.
Fiduciary Decisions provides the industry’s most comprehensive Defined Contribution Plan Benchmarking service.
- All of Fiduciary Decisions’ data is obtained directly from the source – the Recordkeepers, TPAs and Advisor/Consultants who service the plans. Our comprehensive, verified data is no older than 90 days when obtained and includes fees, services and participant success measures.
- Fiduciary Decisions’ proven method focuses on building apples-to-apples benchmark groups of similar plans by service provider, using high-quality data and providing a balanced assessment of the relationship between value and fees.
- Our reports are designed to be simple, transparent and practical. The reports provide concise information and actionable intelligence that support sensible decision making. The reports and the process used to review them can be part of a prudent ERISA required review of fee reasonableness and can be a qualified plan expense.