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Revenue Sharing of sub-TA fees


Guest Carol Ringwald

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Guest Carol Ringwald

Don't forget to look at the potential revenue sharing you can get from mutual fund companies for what are known as sub-TA fees. A mutual fund will typically pay a transfer agent for keeping all the individual records of its investors. In a qualified plan, if you are doing daily recordkeeping, you are the one keeping the records. So, you may be able to collect a portion of the sub-TA fee to help offset other plan expenses. Typically, these fees can be up to $10 or $12 per participant that holds that fund as one of their assets. Many people worry about getting revenue sharing for the 12b-1 fees but fail to get information about these fees.

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Carol J. Ringwald

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  • 3 weeks later...
Guest TRUST53

Does this apply to directed trustees,i.e. banks? Are these fees disclosed in the prospectus?

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Guest Carol Ringwald

The sub-TA fees are typically not disclosed directly in the prospectus. The mutual fund will typically have a specific arrangement made with the transfer agent for the fund and the sub-

TA fees would be disclosed in that agreement. You might want to take a look at Labord Department Advisory Opinion 97-15A on Prohibited Transaction Concerning of Payment of Fees to a Mutual Fund. Frost Bank was involved in this opinion.

My understanding of this opinion is that as long as you offset the revenue sharing you receive from the mutual funds against plan expenses, there should be no problem in you negotiating and accepting these fees from mutual fund companies.

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  • 3 weeks later...
Guest boetgerinc

As I read the comments for this item, I can't help but get on my "soap box" and state that this is what is going wrong with our industry. You are talking about collecting undisclosed fees, paid by a mutual fund. Today, everybody talks about how much money they can get paid from the mutual fund, but you do not need to do this.

Our TPA firm provides a daily product (including voice) using Vanguard Mutual funds. We are not associated with Vanguard, in fact, they do not even know that we exist. We download mutual fund prices off of the internet, we process trades over their phone system, and we do not get paid one cent from them. We charge the client our fee for service, and that is all there is. Daily valuation can be done for clients, on a fee for service basis, with no under the table dollars. I can look my clients in the eye, and I can disclose every and all fees associated with their plan - the Vanguard internal management fee, and our fee. Why is everyone so greedy today with the soft dollars?

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Guest Carol Ringwald

I would disagree that these firms are being "greedy" for soft dollars. Vanguard's mutual funds are priced such that they do not pay shareholder services fees for the marketing of their products to brokers and investment professionals. Vanguard chooses to direct market their funds. On the down side of this, Vanguard does not provide asset allocation models and help to participants for selection purposes. So, their pricing reflects that. I am familiar with this since I have 401(k) assets in Vanguard funds. It is very difficult for me to determine on my own what allocation to use. There's no investment professional, so I'm really on my own. I'm fairly comfortable with that because of my investment background. Unfortunately, most participants need additional retirement planning help and Vanguard just doesn't provide this same level of help...it's too generic.

The dollars that are being captured from the mutual fund companies can be legitimately given back to the TPA because they are performing the work that these fees cover. Such as helping to market the fund, keeping track of individual participant accounts and so on. Also, there is typically an investment professional involved who is being paid to help with asset allocations and more educated retirement planning for participants.

The Vanguard program seems to work well for you and your clients, but is not for everyone. The cost of providing a very diversified set of accounts for participants is not inexpensive. Therefore, the willingness of the mutual funds to recognize the services that these firms are providing, is to the advantage of the Plan since any revenue sharing given to them is used to offset the expenses the Plan ultimately incurs.

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Guest Charles Friday

In addition to the "sub-ta" fees, my firm will also collect and rebate 12b-1 fees, shareholder servicing (sub-ta) fees, finder's fees, dealer concessions, etc. They can only be rebated to the trust. Often times plan sponsors do not even know these fees are being paid. If you are a recordkeeper, we can do a "scrub" of your plans, revealing to you which ones have these types of fees available. The fact that you are basically finding money for your clients can be a great value-added service.

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1-800-693-7800

cfriday@macg.com

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  • 2 months later...
Guest DottleC

I think it's important to separate the responsiblity of a TPA versus a Bank Trustee with some investment authority. O Letter 97-15A details a Bank fiduciary's responsibility to disclose and offset fees, O letter 97-*16*A however details a *service* provider's responsibility - different. Disclosure is obtained even by a TPA (hypothetically) by virtue of the fact that the sponsor agrees to any fees before the TPA agrees to administer the plan - even to the extent that an offset of the fees may be in order.

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  • 4 months later...

Scuba, to my knowledge, there are no other rulings out there other than the two DOL opinions.

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Carol J. Ringwald

Senior Consultant

Shawmut Consulting Assoc.

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Guest Elinor Merl

One of the issues I have run into with respect to receiving fees as a sub-transfer agent is that the agreements with the mutual funds often require the TPA to be registered as a "Transfer Agent." This requires SEC registration and an annual filing.

Has this been your experience? If not, how do you deal with the mutual fund agreement requirements?

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  • 10 months later...

What 415 issues are raised here? Any idea if a rebated fee that is allocated to participant accounts will be considered an "annual addition" under Code section 415?

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  • 2 weeks later...

Typically, if the 12b-1 fees or sub-TA fees are credited to the plan accounts and spread to the participants' accounts they are done as a fee credit. Therefore, they included in earnings. Since these are used to reduced plan fees, I don't believe there would be a 415 problem.

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