Fee Disclosure and Self Directed Broker Accounts

[HarleyBabe]

Hoping for a little clarification on the above. Client has self directed broker accounts. I'm trying to get some direction in laymans terms to explain what is required for fee disclosure on the investment side because nothing was provided. There are no designated funds. Everyone can do as they please. I have never agreed with this approach for a 401(k) plan and am looking for amunition to convince the movement of these of these assets to one of the mutual fund/insurance companies. I understand that a FAB was issued offering some relief to what was required by plan sponsors to provide to participants for these I believe I'm just confused by it. Therefore, what exactly are these brokerage institutions/plan sponsers ultimately responsible for providing? And any additional knowledge to help me explain the vulnerability of this Trustee would be helpful. I might add that they can also invest in whatever brokerage house they like.

[Bird]

That's a long discussion and you might want to review other threads; I've opined at some length on this exact topic. Text from the FAB, Q&A 13, is below. I've come to think, somewhat unfortunately, that if participants can truly do whatever they want, then no specific disclosure is needed - you're not forcing them into XYZ brokerage account that charges $100 per year or whatever. They could, in theory, go to ABC bank and buy a CD and pay no direct fees. Nevertheless, I've tried to get the brokers involved to provide a simple fee schedule, even with the most basic info ($x per year) and could've saved myself a lot of trouble by simply poking myself in the eye with a sharp stick.

I do think that if everyone is effectively or actually limited to XYZ brokerage firm, then you absolutely have to provide a basic fee schedule on fees that they will pay (account fees and commissions). I have some where everyone seems to wind up in (godawful) managed accounts, but, at least in theory, they could let their money sit in a MM fund or buy a mutual fund or whatever, so the managed account (and fees associated thereon) is just like any other option.

Second, a plan administrator also must provide an explanation of any fees and expenses that may be charged against the individual account of a participant or beneficiary on an individual, rather than on a plan-wide, basis in connection with any such window, account, or arrangement. See 29 CFR § 2550.404a-5©(3)(i)(A). This would include: (1) any fee or expense necessary for the participant or beneficiary to start, open, or initially access such a window, account, or arrangement (such as enrollment, initiation, or start up fees), or to stop, close or terminate access; (2) any ongoing fee or expense (annual, monthly, or any other similarly charged fee or expense) necessary for the participant to maintain access to the window, account, or arrangement, including inactivity fees and minimum balance fees; and (3) any commissions or fees (e.g., per trade fee) charged in connection with the purchase or sale of a security, including front or back end sales loads if known; but would not include any fees or expenses of the investment selected by the participant or beneficiary (e.g., Rule 12b-1 or similar fees reflected in the investment's total annual operating expenses)