Fee Policy Statements: Upping the Ante on Fee Disclosure

Plan advisors are well aware that one of their clients’ newest — not to mention most publicized and even controversial — demands is fee disclosure. To meet that demand, some advisors are going a step further. Investment News reports that some advisors are providing fee policy statements in addition to the required information.

Fee policy statements provide information on how fees should be allocated, as well as what the plan sponsor should do to exercise oversight of plan fees. They answer questions like:

• Who pays the administrative expenses?

• Do the record keeper and fund companies share revenue?

• After recouping expenses and profits, do the service providers restore any revenue-sharing amounts that are left?

Why produce and distribute yet another document? To help plan advisors meet plan sponsors’ demands for a better understanding of plan fees and a better way to use plan fee information. 

Drinker Biddle & Reath’s Fred Reish offers a note of caution, noting that fee policy statements should state clearly that they are guidelines, as well as what information the plan sponsor will gather and how it will use it. Reish warns that because fee policy statements can be considered governing documents, not following them could be a breach of fiduciary duty. He further suggests that a plan committee review fee policy statements annually.

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