For the fourth consecutive year, reviewing fees is the most important step defined contribution plan sponsors are taking to improve their fiduciary positions, with fees identified as the main priority for 2020, according to a new survey by U.S.-based investment consulting firm Callan.
“With the amount of fee-related project work we see, it’s not surprising fees continue to be a top priority for 2020,” said Jamie McAllister, a DC consultant at Callan and co-author of the report, in a press release.
The survey, which polled more than 100 U.S. DC plan sponsors, found half of respondents are planning to renegotiate manager fees in 2020 and 45 per cent are planning to renegotiate record-keeper fees.
As well, two-thirds of plan sponsors reported they’re either somewhat likely or very likely to switch to lower-fee share classes in 2020. And 55.7 per cent said they’re likely to conduct a fees study in 2020.
When asked about fees, nearly 70 per cent of plan sponsors reported calculating their all-in DC plan fees within the past 12 months, the survey found, which includes applicable administration, record keeping, trust and custody fees and investment management fees. More than half (52.6 per cent) of respondents reported evaluating indirect revenue when calculating fees.
“What is surprising, over 45 per cent of sponsors don’t evaluate indirect revenue as a part of their fee review,” McAllister said. “Since indirect revenue from sources such as managed accounts or rollover assets can be a meaningful amount, we feel it’s important to be considered in the overall fee evaluation.”
The survey also found more than six in 10 plan sponsors have a fee payment policy in place as either part of their investment policy or as a separate document. This is up considerably since 46 per cent of respondents said the same in 2018.
Plan sponsors also identified communicating with plan members as a top priority for 2020. Within communications priorities, they ranked financial wellness as the top area of focus for the third year in a row.
Interestingly, the lowest area of focus in communications was fees. “While plan sponsors are heavily focused on managing plan fees, they are not as focused on communicating them, according to their lower ranking,” noted the report.
Email was the most common channel used by plan sponsors to communicate in 2019, followed by record-keeper’s websites and postal mail. Of note, the use of mobile apps to communicate increased, from 19 per cent in 2018 to 34.5 per cent. The survey also found the use of text messages, blogs and social media are still uncommon.
On the investment front, a large majority (93.3 per cent) of plan sponsors said they offer a target-date fund. And plans offering custom target-date solutions increased, from 13.3 per cent in 2018 to 17.3 per cent in 2019.
“Those offering custom solutions cited access to best-in-class underlying funds, better cost structure and control over the glide path as the top motivations,” the report said.