We are often asked the following question from investment professionals and recordkeepers – “How do I demonstrate that my compensation is reasonable?” Understanding and demonstrating the “reasonableness” of your compensation has come to the forefront of what plan sponsors now expect in evaluating financial professionals and other plan service providers because of the onset of the Department of Labor’s fee disclosure regulation. And there can be little doubt that the fee disclosure regulation will continue to garner a lot of attention.
What seems to be lost in all of the publicity surrounding these new disclosure requirements is that the mandate that service provider fees be reasonable has been a condition to exemptive relief under DOL’s 408(b)(2) regulation since the enactment of ERISA. In other words, while it may now be the case now that provider compensation needs to be disclosed, it has always been the case that the amount paid needs to be reasonable.
All of this begs the question – how can I prove that the compensation I receive satisfies the “reasonableness” test? Read more