Declining Plan Fees Reshape Retirement Industry Focus
There are few, if any, other industries in which costs have declined as precipitously as in defined contribution. Computers, phones and TV prices have stayed steady, but not if you consider the incredible increase in power and capabilities. Moore’s Law is the observation that the number of transistors on a microchip doubles approximately every two years, while the cost of computers is halved.
But most costs across almost all other sectors, like food, home, automobiles, transportation, healthcare and other basics, have risen, some substantially.
Record-keeper fees rose in the 1990s as the industry shifted to retail mutual funds and annuities, enabling smaller employers to offer workers 401(k) or 403(b) plans. Those fees were mostly hidden from the plan sponsors, who did not understand revenue sharing or annuity wrappers—the plan appeared to be free.
Most record keepers offered only proprietary funds, which attracted dozens of mutual fund managers, who increased AUM at minimal costs with stickier assets. Insurance providers offering annuities made money on the spread or wrapper, which was even harder to uncover.
Participants were oblivious and happy because the stock market was booming.
Similarly, advisor compensation, mostly commissioned, was oblique, paid out of revenue sharing like 12(b)(1) fees with C shares common. Advisors were paid 1% in A shares every time they moved money.
Annuities were even worse—some advisors were making more than 1% annually, with others getting paid 3% to 4% upfront. Some clueless advisors, dubbed “blind squirrels,” were sitting on huge annual paydays while doing little to no work.
It was the Wild West in the 1990s and even the 2000s for many advisors and record keepers.
Then, a very few specialist advisors, now called RPAs, began to attack these plans, offering substantial savings while acting as fiduciaries, conducting investment due diligence—the Triple F advisor. Life was good because there were so many opportunities, and they not only relentlessly attacked advisory fees but also started conducting record-keeper RFPs, driving down fees while moving money into index funds.
The 2001 market collapse only helped wake up plans and participants to the reality of investing in high-flying tech and internet stocks cratering. The 2008-09 Great Recession was even worse, capped by a 60 Minutes segment with then PSCA Executive Director David Wray, left to explain why record-keeper fees were so high as people lost half their assets and older workers were unable to retire.
All of which led to congressional hearings led by then-U.S. Rep George Miller (D-Calif.), which eventually resulted in the 2012 Department of Labor fee disclosure rules. Even more impactful, lawyers like Jerry Schlichter started suing DC plans in 2006 and have recovered $750 million for clients since, while the DOL investigations recover even more annually.
Record-keeper consolidation resulted in many fewer, much better providers.
But the Triple F advisors had opened a Pandora’s box—if fees were so important, what about their fees? Armed with investment reporting tools and the ability to act as a fiduciary, even less experienced RPAs seemed to be able to offer similar services at a reduced cost. Index funds offered less revenue sharing, and record keepers whose fees were slashed had less money to support these advisors. Not a good look to hold advisor conferences in Bali using retirement savings.
As one fund industry told me, fees get you on first base—you cannot steal first. It’s the only variable that can be absolutely controlled.
As a result of the hyperfocus on fees, record keeper service has deteriorated, and most wealth advisors and their broker/dealers stayed away from a high liability, low margin business. A recent 401(k) Book of Averages report indicates fees continue to decline.
But the upside of this race to the bottom has been the focus on the participant, something Fidelity got early, while purist RPAs abstained from using it as a selling point. All of which has changed: record-keeper wealth service revenue, according to a McKinsey report, was $45 billion in 2023, with $38 billion from IRA rollovers, while plan fees were just $16 billion—profit margins on record keeping for larger plans were 3%!
And while DC assets continue to grow, it is mostly due to market gains, according to Morningstar, with $1 trillion rolling into IRAs, which is a real problem as more providers and advisors move to flat, not asset-based fees.
Similar issues exist for RPAs, with Fielding Miller declaring in 2018 at the inaugural RPA Aggregator Roundtable, “Our participant fees dwarf our plan fees.” The 2025 NMG Consultant study showed the issues that Triple F advisors face.
Wealth advisors with a healthy DC practice are best positioned, with the recent and stunning Fuse research showing that a majority of advisors are converting at least 6% of DC participants into clients, with larger firms converting 17% or more. All of which is attracting wealth advisors back into the DC market, as well as their broker/dealers to support them, who are desperately needed with plan formation exploding due to state mandates. Half of all wealth is hidden, according to Brandon Kawal at Advisor Growth Strategies, while most HENRYs do not have an advisor.
The DC platform has become the hub for providing advice on all aspects of a participant’s financial well-being, including selecting the right benefits. Some firms like Captrust offer one-on-one meetings at a low cost using financial coaches subsidized by the $1 million of investible assets they find, one of eight meetings, while others, like Prime Capital, move participants into their managed account, earning 30 bps. Morgan Stanley has leveraged the workplace to gather $300 billion in wealth from 2020 to 2025. Artificial intelligence will enable these coaches to work with more participants who will become the next generation of financial advisors.
The mission of DC plans should be to improve retirement income, not have the least liability, best funds or lowest cost, along with increased participation and deferral rates, all of which are important, but they should not be mistaken for the goal. Eventually, plans will need to automatically embed guaranteed income to transform DC plans from saving vehicles to a true retirement plan that replaces pensions. And eventually, healthcare and other benefits will undergo the same metamorphosis as DC plans, due in part to the 2021 CAA and lawsuits.
But the focus on the participant and wealth services would not have happened if RPAs and record keepers were getting rich on plan fees, which is why declining plan fees have been both helpful and harmful.