Revenue share makes sense if the product offerings of the partner and software vendor are not competitive, but complementing.
Recognizing this problem, federal regulators have passed new rules requiring service providers to disclose their fees to plan fiduciaries.
Although these rules will ultimately benefit retirement plans and participants, they place increased pressure on plan fiduciaries to interpret and evaluate the appropriateness of service provider compensation – a task many fiduciaries aren’t prepared to undertake.
The investment manager receives the investment management fee as direct compensation.
Revenue Sharing for Fee-Based Plans Some recordkeepers have the ability to credit back revenue sharing fees to the plan.
More than ever, it’s critical for plan fiduciaries to understand the various components of their retirement plans’ fees, particularly indirect fees and the concept of revenue sharing.
The following describes common ways that money flows through retirement plans.
Today we are satisfied by our position taken on the market and company growth.
The software vendor endorses the product of the revenue share partner.
Revenue sharing components are highlighted in red in the chart below.
In this model, all revenue sharing is passed through the fund to the plan’s service providers.
The diagram below illustrates the expenses of a typical equity-based mutual fund that might be found in an employer-sponsored retirement plan.