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TPA Fee


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3 replies to this topic

#1 PATA

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Posted 27 April 2004 - 07:20 AM

One more question... Thank you all for your patience.

Financial advisor has asked if TPA fees could be based on the amount of assets... a percentage. As assets grow so would the admin fee. When asked why he asks he told me that he was told by an attorney that the SEC would label fees generated in that way to be considered "illegal commissions". I am not savvy with regards to SEC rules but don't see the fees to be commissions at all. I told him that as long as he disclosed his fee schedule I didn't see a problem... but that I would ask a panel of experts. Any thoughts ?
Its not easy being green

#2 alanm

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Posted 04 May 2004 - 01:57 PM

The SEC rule 3040 and proposed rule 15-c2-2, deal with basis point advisory fees and mutual fund trailer commissions and their disclosure. You are required to be registered as an investment advisor to receive such fees. There is no rule saying a service provider other than a registered advisor cannot receive an asset fee from assets invested in mutual funds, however, the only way to prove it is not a commission for soliciting a plan or a finders fee is to tie the amount of the asset fee to a standard TPA fee arrangement. For example, if $50 a participant is a fair administration fee, then the amount of the asset fee collected should be the same. The problem is, as plan assets grow, the asset fee gets bigger while the standard TPA fee should decline. In that case, there is no way to justify the asset fee as a fee for service: it begins to look like a solicitors fee and the DOL and SEC would have a problem with that.

#3 PATA

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Posted 04 May 2004 - 02:15 PM

This financial advisor was trying make the start-up cost minimal. His proposed arrangement would be that once the assets reached a certain level the fee would top out at the fee schedule a TPA would normally charge. In that case the TPA isnt makeing tons of $$ on assets in a fat plan with barely any participants.

Thank you for your input!
Its not easy being green

#4 alanm

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Posted 13 May 2004 - 12:53 PM

That is probably ok, if you cap the asset fee at fair value of the TPA contract. In other words, the TPA is actually discounting their normal fee until assets reach a certain level. There is no rule saying a TPA can't charge an asset fee and that doesn't make the TPA an investment advisor.