Don’t Get Sued—Know Your Revenue Sharing Fees

Save America, Save - A Financial Services Podcast with Charlie Epstein

In case you didn’t know, revenue sharing has been the basis for the largest litigation and lawsuits by the largest law firms across America against you—the planned sponsor fiduciary. These lawsuits happen because these law firms claim you don’t understand all the fees in your retirement plan, how those fees are paid, who they’re being paid to, and whether or not they’re reasonable. In the video above, I’ve added a slide of a revenue sharing dial which breaks down all the fees and expenses that could be paid inside your retirement plan so you can follow along as I explain each portion. When I show a planned sponsor this dial, 80% of the time, they tell me it’s the first time they’ve ever seen the chart. In fact, we recently took over a $10 million retirement plan from a planned sponsor who told us he’d been asking his broker for years who was getting paid and how they were getting paid. So how are revenue sharing fees paid in your retirement plan? I’ll give you an example. “We can help you protect yourself against a fiduciary liability lawsuit.” Let’s imagine you have a mutual fund in your retirement plan and the expense ratio is 1%. Of that 1%, let’s assume 0.5% (or 50 basis points) goes to your mutual fund manager as a managing investment fee. Where does the other half go? Well, 0.25% of it goes toward the 12b-1 fee, which is the commission paid to your broker and what you use to pay for marketing by that mutual fund company. Of the remaining 0.25%, about 0.2% goes toward shareholder servicing fees—that’s revenue sharing. That’s what the fund company is paying your record keeper to get on the platform and have access to your employees. In other words, it’s a slotting fee. A lot of the litigation I spoke of involves the lawyers arguing that this 20% is really your employees’ money and should be paid back to them. The remaining 0.05% goes toward sub-transfer agent fees. These are paid to the company that tracks the money your employees move from fund to fund. If you have a plan where the average fund expense is 1.25%, you have another 0.25% (or 25 basis points) that goes toward your asset fee. This is your record keeper basically saying they’re not making enough money to operate your plan, so they have to charge you another 25%. As a planned sponsor fiduciary, there are certain questions you must ask yourself. Are those fees reasonable? Can you reduce those fees? If so, how? We can help you with those questions by offering our B-1 Vendor Benchmarking service free of charge.All you have to do is give Matt Gilmore, one of our planning consultants, a call at [phone]. He’ll help you uncover all the fees in your plan and protect you from a fiduciary liability lawsuit by benchmarking those fees. If you have any other questions about revenue sharing or creating a paycheck for life, don’t hesitate to give me a call or send me an email. I’d be glad to help.