Trends in Fee Disclosure

1. Trends in Fee Disclosure FIRMA National Training Conference April 12, 2006

2. Background • The SPARK Institute • Retirement plan industry advocacy group • Members consist of 40 industry-leading organizations collectively servicing plans covering approximately 97% of all defined contribution plan participants • Members include banks, mutual funds, investment advisors, insurance companies TPAs, and benefits consultants

3. Industry Realities • Why is fee disclosure so complicated? • How did we get here? • Demand for broad array of investment alternatives • Plan sponsor preferences and pressures impact pricing and disclosure • Complex expenses and compensation structures • Service provider compensation (record keepers, investment advisors, brokers, and consultants)

4. Industry Realities

5. Investment Funds • Open architecture • Mutual funds • with revenue sharing • without revenue sharing • with service provider wrap fees • Collective trust funds • in-house • third party • Separate accounts

6. Investment Funds • Open architecture (cont.) • Employer stock funds • Fund of funds • Managed account s • Variable annuity products • Fixed interest contract (e.g., GAC) • Exchange traded fund ("ETF") • Self-directed brokerage • Other plan assets (e.g., limited partnerships)

7. Plan Sponsor Pressures • Direct Billing • Subsidies (R Shares) • Rebate Demands • Participant Disclosure • Competitive Pressures

8. Compensation and Expense Complexities • Direct billing • Plan administrative fees • Sponsor paid or plan allocation • Embedded fund fees and expenses • Investment advisory fees • Transfer agency fees • Internal allocation among affiliates • Embedded mutual fund trading costs • Fund wrap fees

9. Compensation and Expense Complexities • Revenue sharing • Annual asset-based • R Shares • One time asset-based • One time account-based • Travel, entertainment and sponsorships • Redemption fees • CDSCs • Insurance product crediting rates • Pass through payments • Plan rebates

10. Service Providers • Record keepers • Brokers • Consultants • Investment advisors

11. DOL Concerns and Objectives • Plan does not pay more than reasonable compensation for services • Fiduciaries understand the fees that are being charged • Fiduciaries understand the potential conflicts of interest (revenue sharing) • Participant fee disclosure

12. Service Provider Initiatives • Help plan sponsors understand: • The fees and expenses associated with maintaining their plans, particularly investment expenses • Potential service provider conflicts of interest • Level the playing field among service providers through complete transparency and standardized disclosure

13. Service Provider Initiatives • The existing DOL model disclosure should be completely overhauled • Form is complex and rarely used • Industry confusion developed during the time that form was available for use • Adding new schedules will neither improve clarity nor encourage usage • New schedule proposed by other trades provides little standardization and leaves open opportunity for abuse

14. Service Provider Initiatives • Develop new comprehensive and standardized disclosure forms • Spreadsheet format that provides a global view of all plan costs and expenses • Provide rates and dollar estimates of embedded investment expenses • Provide rates and estimates of amount received by service providers, including revenue sharing and wrap fees • Disclose all payments including one time payments (e.g., finders fees) and expense reimbursements (e.g., travel for due diligence)

15. Service Provider Initiatives • Comprehensive approach should include: • Industry guidelines for completing the forms • A standardized list of data points that would be provided by plan sponsors to help standardize disclosure during the bidding process and allow plan sponsors to more easily compare bids • Plan sponsor educational summary and users guide

16. Thank you!