Lately we’ve been looking for research on fee levelization — or fee equalization — trends in 401(k) plans. Turns out there are a few studies out there, but it’s slim pickings. The studies we’ve found don’t really give us a good sense of the current landscape.
So, we decided to do our own research by going straight to the source, retirement plan advisors. We wanted to go deeper to understand what they’re seeing in regards to fee levelization, how they’re using it, what challenges they’re facing and more. Here are four key insights we uncovered:
Insight #1: Fee levelization adoption is low, but growing
While most advisors for retirement plans say a low percentage of their clients use a method to levelize or equalize fees, they expect that number to change…
Insight #2: Prospective clients are hearing about it more
It appears advisors are more comfortable talking about levelizing plan administrative fees with prospective clients than current clients. More than half (54%) say they’re regularly pitching fee levelization to prospects. But only a little over a third (37%) report they’re talking with current clients at least once a year about fee levelization. Some admit they’re not talking about it with potential clients (46%) or current clients (36%) at all.
Insight #3: Advisors get fee levelization, but their clients typically don’t
Even though most advisors say they’re familiar with fee levelization, they don’t think the same goes for their clients. Nearly 7 in 10 (68%) tell us they’re familiar with fee levelization and the various collection methods. But the majority rank “lack of awareness and understanding among plan sponsors” as their top concern (63%) about initiating conversations with clients; followed by “fear sponsors won’t understand (fee levelization) benefits” (57%).
Insight #4: Plan sponsors need your help
Plan sponsors have lots of reasons to consider equalizing plan administrative fees (i.e., related fiduciary responsibility). The problem is, per the advisors we spoke to, plan sponsors don’t always know or understand their options. Advisors say “fiduciary concerns (59%) top the list of the biggest drivers for plan sponsors to move to fee levelization,” followed by the “threat of legal action” (18%). They need your help to understand and navigate their options.
How to leverage these findings
What does all of this mean for you and your practice? To me, it represents a big opportunity. Here’s why…
- Plan sponsors need education and guidance on this topic. Make sure that comes from you first, not your competitors. Consider using the educational resources (for plan sponsors and participants) at the bottom of this website.
- Our research also shows not enough advisors are talking about fee levelization with their existing clients. Make sure you not only tee up this topic with your current clients, but any prospects as well. Start by talking about participant fees and how revenue sharing works.
- With new insight into plan sponsor use, challenges and motivation for implementing fee levelization, you can use our full research findings to your advantage.
For more information and actionable tips, join me for our Nov. 1, 2017 fee levelization webinar.
 Fee Levelization Advisor Insights Study conducted by Principal, July 2017.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392.
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