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 adopt to negotiate competitive fees?
An investment management fee policy.
What combination of approaches can plans use to minimize fees?
Economies of scale, low-cost passive index strategies, and competitive selection processes.
What additional complexity do alternative investments add to defined benefit plans?
Procedures to identify, quantify, and analyze compensation for investment managers.
Who should address roles and responsibilities in investment management fee negotiations?
Guidelines should address the roles and responsibilities of internal and external participants.
What responsibilities should staff have regarding fee negotiation?
Include reporting on the status of negotiations and fees in accordance with trustee policy.
What strategies can increase net investment returns regarding fees?
Negotiating the lowest reasonable competitive fees using peer comparisons and most favored nation clauses.
What should the process guidelines for negotiating investment fees establish?
The importance of competitive fees among other factors when selecting investment managers.
What are the additional strategies for investing in alternatives to ensure not paying unwarranted fees?
Favor performance fees for alpha, retain a qualified attorney, and consider all accounts for fee determination.
How should a defined benefit plan incorporate anticipated investment performance strategies?
Establish instructions for how each manager should manage portfolios and define constraints, valuation, and fee calculation.
What strategies should be implemented to ensure the plan is paying a reasonable, competitive fee?
Establish fee break points, identify all fees, align interests through performance fee structures, and seek access to the lowest-cost share class.
