Broker-dealers up in arms 401(k) fee disclosure

Industry Skyline
Image by Rhys Asplundh via Flickr

This cash cow is about to end for many broker dealers. The writer of ERISA never intended for the 401(k) plan to be utilized as it is today. It is used more as a specualtion tool rather than a retirement savings vehicle.

Some industry observers say the brokerageindustry only has itself to blame for the fact that its compensation arrangements are so complicated.”This is a reflection of the broker-dealers choosing to operate in an environment where they charge everyone differently for identical services,” said Mercer Bullard, an associate professor of law at the University of Mississippi. “The industry… created the complexity and now they are complaining about having to disclose it.”

Revenue sharing agreements, by which mutual funds share revenue with broker-dealers, are just a part of doing business, said Brian Graff, CEO and executive director of ASPPA.

“If everyone paid the same amount of compensation for everything, it would be less complicated but… that’s now how the free market operates,” Graff said.

Brokers are also reluctant to disclose how much different fund families are paying them to be on their platforms. “No one wants to air their dirty laundry,” said one brokerage executive, who declined to be identified because the issue is sensitive for his firm. “There is a lot of vulnerability.”

Right now, each broker-dealer is taking a different approach in its efforts to comply, officials said.

Some firms are opting for a “phone book approach” to the disclosure, which means they are listing the fee they receive for any investment option available to investors with self-directed accounts.

Other firms are disclosing a possible range of compensation for each fund the firm offers.

Confusion is the brokerage industry’s most powerful weapon. They are able to generate huge amounts of cash flow at the investors expense. This must stop particularly in retirement accounts.

Please comment or call to discuss how this affects you and your investment accounts..

  • Brokerages may have to change business practices: DOL (
  • Spotlight on 401(k) fees may help many saving for retirement (
  • How Small Business Owners Can Fine Tune Their Company 401(k) Plans (
Enhanced by Zemanta

Leave a Reply

Your email address will not be published. Required fields are marked *