Cheap 401k Fees Are Not The Answer

There seems to be a huge trend right now to lower costs associated with retirement plans like the 401(k). Now don’t get me wrong, I totally get it and I too believe that lower fees for plan participants is great thing, so much so that I recently wrote a blog post about shifting costs from the employees to the employer (click here to read the post). I also believe that Vendors and Advisors should not “over-charge” for their services. However, the above concepts don’t mean that these professionals shouldn’t get paid a fee equal to the unique and valuable services that they provide. These people should be making good money! They do a damn good job and make a real difference for both Sponsors and their participants.

What kind of negative ramifications might come from this obsession with lowering fees? Is it really the right direction for our industry? The services provided to retirement plans are very serious in nature and crucial to overall success. The firms and professionals that offer these services deserve a fair rate that equals their expertise and time commitments to their craft.

For clarity purposes I work mostly in what the industry would call the “micro” or “small” market. These are plans typically under 10 million dollars in assets. I have seen and continue to see hundreds of these plans put in place each year and I see absolutely no evidence of any kind of excessive fee practices. Quite the contrary, sometimes I wonder how Advisors, TPAs and Recordkeepers can even survive on the fees they do charge.

Advisors and their partners need to band together now and stop this wussy mentality of spreadsheeting the lowest possible costs, pushing each other further into the red. We should instead be working on better service solutions, more engagement, better outcomes and new innovative ideas. Geez, I might even go so far as to say creating things that you could even charge more for, not less. In my utopia, the retirement plan professionals would make a great living because they offer very professional services that demand a specific skill set and experience that not everybody has.  In other words, they would earn it.

Good work ain’t cheap and cheap work ain’t good.  Well, that’s my two cents….wait shouldn’t my thoughts be worth more than two cents, apparently not in this new 401k world.

-JDC
I gotta plug some stuff……You are kidding me, you haven’t seen Retireholi(k)s Episode 11? All the cool Advisors and cool Industry Professionals watch it, don’t you wanna be like the cool kids?  www.retireholiks.com

 

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