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How Regulators Can Target Excessive Fee Situations
By Louis S. Harvey, CEO Dalbar, Inc. on Jun 17, 2012

So you think you are safe, think again!

Almost completely lost in the frantic effort to comply with the July 1 and August 30 deadlines for fee disclosure is the regulatory objective of lowering fees by $14.9 billion. The stated goal is to curb excessive fee situations that are the most egregious.

Squeezing $14.9 billion from retirement plan revenues becomes remarkably simple when the new regulatory structures are examined from that point of view. The answers to three questions make it obvious what regulators have in mind.

1. Can regulators target excessive fee situations?

Answer: Yes, easily. The Schedule C fees that have been collected since 2009 makes it simple to find both the plans and the service providers to target for excessive fees. Additionally, the targeted service providers provider a roadmap to all of their plan clients that are also likely to be excessive fee targets.

The second targeting method is based on “whistle blower” participants, former employees and their attorneys who call the DoL to complain about excessive fees.

2. Do regulators have the resources to act on the targets?

Answer: Yes, targeting primarily requires running computer programs. An automated process can economically send letters to thousands of plan sponsors, asking them to explain their high fees. Human resources to pursue excessive fee targets come from the nearly 1,000 staff that regulators are in the process of acquiring.

3. Can a targeted firm respond to regulators?

Answer: Maybe. Regulators have said that they will be looking for a prudent process that explains why fees are high. Targets are automatically guilty if it cannot be demonstrated that a prudent process was used to test the reasonableness of a service arrangement.

A fourth question that naturally comes to mind, “What can a firm do?”

The first step is to determine if a plan is a likely target. If it is the plan should immediately engage in a prudent process before regulators call. Fee Disclosure Experts are available to assist plan sponsors.

If the plan is not a likely target and the plan sponsor wants to play it safe and comply anyway, the Fee Disclosure Experts can assist with establishing the prudent process.

For more information or to locate a Fee Disclosure Expert send an e-mail to or check out the Website



Created by Louis S. Harvey, CEO Dalbar, Inc. in 6/26/2012 11:57:21 AM
The consequences depend on the specific facts and circumstances and since the regulations are new it is hard to tell how far regulators will go. Penalties could include, reimbursing the plan for excessive fees, potentially retroactively. In addition, there could be a 5% penalty and/or excise taxes. In a worst case scenario, the entire plan could be disqualified immediately making the plan assets taxable!
New Comment
Created by Anonymous in 6/26/2012 11:04:22 AM
What is the penalty if targeted and fees are high

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Louis S. Harvey
President & CEO



Founder and leader of Dalbar, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow and for years hence. Using Dalbar’s research capabilities, Lou Harvey seeks insights from inside and outside the industry to understand and anticipate changes in customers’ needs and the ways products are distributed.


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