Fund Share Classes and Your Fiduciary Role

Retirement Plan Consulting

Aug 24, 2020

As the plan sponsor of a corporate retirement plan, there are a lot of details to manage. Most plan sponsors rely on their hired parties to the retirement plan to handle the different aspects of the plan. Mutual fund share classes don’t often come up in the conversation. That may not mean much as long as the share classes being recommended to you are in the best interest of the plan. However, we have found that there are many plans out there that are not offering the best share class available to the participants.

Share classes are different versions of mutual funds. The funds themselves have the same investments and strategies. The difference lies in the fee structure. Some share classes cost more and pay revenue to different parties to the plan. That is not necessarily a bad thing. It may just be the way those parties are compensated. Most plan sponsors lean on the investment advisor to the plan to determine the best share class. Moreover, the investment advisor is usually a party that could be compensated from the funds depending on the share class. That part would depend on whether the investment advisor is compensated by a fee or by commission.

To take it a step further, some recordkeepers have platforms that include subaccounts, which are essentially another version of share classes. I’ll digress here for a second and say that I think it is ridiculous that there are so many different versions of individual funds. Furthermore, it can be very difficult to determine the best share classes. While it is certainly job security for me as an investment advisor, it is still frustrating that it is problematic in some cases to monitor funds in a retirement plan. The good news is that a lot of recordkeepers are updating their offerings to simplify the process.

So, what does all of this mean to you as a plan sponsor? Well, to put it simply, share classes and subaccounts can be very confusing. If you are in a plan with subaccounts, I would recommend working with your recordkeeper to see if there is a more updated platform available to your plan. If you are not sure about any of it, we’re here to talk. I’m not denying that it is a little self-serving to recommend that you work with a fiduciary advisor on your plan, but wouldn’t you rather work with someone who is backing up his or her process by taking on the added liability? It’s never been easier to work with a fiduciary advisor so if you’re questioning the direction of your plan, you should give it some strong consideration.


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