Theory of Relativity

I was having coffee with a buddy of mine a couple of weeks back, and before long the discussion turned to music; specifically the new Bruce Springsteen CD. Suffice it to say that he had just acquired it, and was enjoying it immensely. As it turned out, I had had a chance to listen to the album (yes, I’m old enough to still refer to them as albums) online – and had ordered it. I had not, however, received it in the mail yet.

My friend – who had picked up his copy at a Starbucks – hesitated – then asked me how much I paid. I then told him (about $10) – and, almost as a courtesy (after all, money had already changed hands) asked how much he had paid.

Well, I never did find out – though it was pretty clear he paid more than I did. In fact, I’ve seen the prices that Starbucks charges on the few CDs they stock there, and it may well have been a LOT more.

Now, I’m sure the Bruce Springsteen album that was delivered to my house (that very afternoon, as it turned out) was identical in every pertinent respect with the one my friend picked up along with his morning coffee a couple of days earlier. On the other hand, he had it in his hands immediately without making a special trip. Forty-eight hours earlier that probably seemed like a good bargain – but one that clearly lost some of its luster the closer mine came to delivery. In short, his comfort with the bargain he’d struck was clearly relative to my experience.

Things aren’t usually that clear cut with retirement plans, unfortunately. Every 401(k) plan is just a little bit different, and some quite a bit so. Every employer brings a different level of commitment to the process, as does every adviser – and the workforce that such programs are offered to surely represent a mosaic of difference as diverse as America herself. There is no such thing as a “typical” 401(k), and – much to the discomfiture of some – there is no such thing as a single reasonable amount to pay for the services that would ostensibly be provided to that 401(k).

Yet for all the buzz around the issue of reasonable fees, it ranked sixth on the list of criteria in selecting a provider in PLANSPONSOR’s 2007 Defined Contribution Survey - just behind variety of investment options. Still, in evaluating participant services, “fees for participant services” was the lowest ranked element – and “fairness of fees” and “fee disclosure” were the most problematic elements of plan sponsor service rankings. Today most plan sponsors feel that they are paying reasonable fees – but there are growing concerns that they aren’t. Concerns that are almost certainly fueled by the growing attentions of the Department of Labor, Congress, and the plaintiff’s bar to that very issue.

Sooner or later, like that Springsteen album, people are going to have a chance to realize that they are perhaps paying very different fees for what may well be, in every pertinent respect, identical services. And that’s, IMHO, going to make for some very unsatisfied customers.