BEST PRACTICES: Investment Fee Guidelines for External Management of Defined Benefit Plans Flashcards
Defined benefit plans, especially those that use alternative investment strategies, should adopt an investment management fee policy that will allow them to negotiate competitive fees.
What should defined benefit plans especially consider regarding investment fees?
They should adopt an investment management fee policy to negotiate competitive fees, particularly for alternative investment strategies.
What roles and responsibilities should staff have in fee negotiation?
Staff responsibilities include fee negotiation, reporting on negotiation status before executing investment documents, and reporting fees according to trustee policy.
What are some strategies for negotiating lower investment fees?
Determining peer fees, including “most favored nation” clauses, leveraging consultant market knowledge, and negotiating the lowest reasonable fees.
How should the importance of competitive fees be ranked in selecting investment managers?
Alongside other factors like manager track records, investment talent, competitive advantages, and the appropriateness of fees given expected returns.
What additional strategies should be implemented when investing in alternatives?
Favor performance fees that reward alpha, retain a qualified attorney for reviewing agreements, consider all plan accounts for determining fees, and ensure not paying unwarranted fees.
How should anticipated investment performance be managed?
Establish clear investment mandates defining strategy constraints, benchmarks, asset valuation methods, and fee calculation methods.
What options might smaller defined benefit plans consider for accessing higher-returning investments?
Group purchasing arrangements, cooperative pools, and collaborative procurement strategies to increase bargaining power and achieve lower fees.
How can plans ensure they are paying reasonable, competitive fees?
Establish fee breakpoints for separate accounts, require fee identification in commingled funds, focus on performance fee structures, and seek the lowest-cost share class.
