I was speaking to a financial advisor friend of mine and we discussed some of the tricks and sleight of hand performed by old third party administration (TPA) firm in its capacity as both TPA and RIA on plans, Apparently, my friend also had worked at a TPA\/RIA where they performed the very same trick.<\/p>\n
Even with full fee disclosure in July, it won\u2019t stop creative fees that will be disclosed to plan sponsor, but will actually be deceptive. So what\u2019s the hidden fee trick for these TPAs? \u00a0One thing that has never been discussed about 401(k) fees at great length are plan custodian fees.\u00a0 For daily valued 401(k) plans, there are trading platforms where plans trade mutual funds on a daily basis. \u00a0While the trades lf no load funds are done on a no transaction fee basis, the plan custodians like Fidelity and Schwab do levy a charge for the plan custodial services. The fees range from 5 to 10 basis points, which are levied against plan assets. What are these TPAs doing? They are levying a plan custody fee on their client\u2019s plans at 25 basis points +. Why are they doing this? With fee disclosure coming in 2011, it will be nearly impossible to hide fees like the pocketing of revenue sharing, so it will be easier to inflate certain fees to compensate for the fees lost through fee disclosure.<\/p>\n
So if you are a financial advisor or a plan sponsor look for the sleight of hand in fees that don\u2019t make a whole lot of sense like inflated plan custodial fees. Just because a fee will be disclosed still does not make the fee legitimate.<\/p>\n
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