Equitable Revenue Sharing Catching on at Paychex
While some mid-market and small record keepers have been heralding the equitable allocation of revenue sharing, very few if any micro market providers offer it. But since June 2013, as a new white paper by Fred Reish tells us, Paychex has offered the service to the smallest of plans.
It’s becoming more and more important for plan advisors to educate their clients not only about revenue sharing, but also whether it makes sense to equitably allocate revenue rather than just allow the record keeper to retain it.
The real question is whether equitable allocation is a fiduciary obligation. While the white paper Reish prepared for Paychex does not go that far, it does straddle the line. The plan sponsor must determine if the plan expenses are reasonable and if the payment method is acceptable. This requires peer benchmarking on the one hand, and on the other, a clear understanding of revenue sharing followed by a reasoned decision. Though equitable allocations are not required, Reish argues that it is the safest methodology — which is further complicated if the decision makers at the plan are paying less because they invest in funds with low or no revenue sharing. By returning the revenue sharing, as Paychex does, the risk is mitigated — and since the provider does not have proprietary funds, there’s even less of an issue for them.
So should advisors be advocating for equitable revenue sharing? Some argue that if only no-revenue-sharing funds like R6s are used, the issue is moot. And some record keepers are not able to equitably allocate, which would mean mass migration of plans. Regardless, with more legal cases based on fees and more DOL fee disclosure rules, the issue is sure to continue. At the very least, advisors and providers need to help their clients understand the issue and make a documented, prudent decision.
Fred Barstein is the Editor-in-Chief of the NAPA Net portal.