I have written extensively on the issues of economics that impact the cost of services, how those costs are allocated, and the consequences of the model. Part of that economy is the ability of retirement services firms to receive compensation from investment managers for preferred shelving of their funds on the retirement services platform that plan sponsors select from to ultimately decide which funds to provide to participants in their defined contribution programs.
While the revenue and margin provided through investment management is clear and compelling, vendor consolidation has also made owning the rails of the retirement system lucrative. For the hundreds of investment managers, not affiliated with retirement plan distribution systems, their only access to the multi-trillion dollar defined contribution system is through recordkeeping platforms. Those providers with distribution have been able to leverage access to the rails of distribution and impose this as a “tax” on investment managers needing distribution.
The outcome is in the recordkeeper’s favor if their fund is used by a sponsor or if they are receiving additional compensation from an outside investment manager. The victims here are not the investment managers considering that their revenue models and margins are more than sufficient to pay up for marginal revenue. Instead, the victim continues to be transparency.
If revenue received from investment managers does not need to be accounted for on 404(a)5 disclosures, on the Form 5500, or detailed on the 408(b)2, then it raises the question of what is the point of the disclosures?
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