Trends in Fee Disclosure FIRMA National Training Conference April 12, 2006

SHAPING AMERICA’S RETIREMENT Page 2 Background The SPARK Institute - Retirement plan industry advocacy group - Members consist of 40 industry-leading organizations collectively servicing plans covering approximately 97% of all defined contribution plan participants - Members include banks, mutual funds, investment advisors, insurance companies TPAs, and benefits consultants

SHAPING AMERICA’S RETIREMENT Page 3 Industry Realities Why is fee disclosure so complicated? How did we get here? - Demand for broad array of investment alternatives - Plan sponsor preferences and pressures impact pricing and disclosure - Complex expenses and compensation structures - Service provider compensation (record keepers, investment advisors, brokers, and consultants)

SHAPING AMERICA’S RETIREMENT Page 4 Industry Realities Plan Sponsor Pressures Service Provider Fees – Revenue Sharing Complex Invest. Fund Fee Structures

SHAPING AMERICA’S RETIREMENT Page 5 Investment Funds Open architecture - Mutual funds with revenue sharing without revenue sharing with service provider wrap fees - Collective trust funds in-house third party - Separate accounts

SHAPING AMERICA’S RETIREMENT Page 6 Investment Funds Open architecture (cont.) - Employer stock funds - Fund of funds - Managed accounts - Variable annuity products - Fixed interest contract (e.g., GAC) - Exchange traded fund ("ETF") - Self-directed brokerage - Other plan assets(e.g., limited partnerships)

SHAPING AMERICA’S RETIREMENT Page 7 Plan Sponsor Pressures Direct Billing Subsidies (R Shares) Rebate Demands Participant Disclosure Competitive Pressures

SHAPING AMERICA’S RETIREMENT Page 8 Compensation and Expense Complexities Direct billing - Plan administrative fees - Sponsor paid or plan allocation Embedded fund fees and expenses - Investment advisory fees - Transfer agency fees - Internal allocation among affiliates Embedded mutual fund trading costs Fund wrap fees

SHAPING AMERICA’S RETIREMENT Page 9 Compensation and Expense Complexities Revenue sharing - Annual asset-based - R Shares - One time asset-based - One time account-based Travel, entertainment and sponsorships Redemption fees CDSCs Insurance product crediting rates Pass through payments Plan rebates

SHAPING AMERICA’S RETIREMENT Page 10 Service Providers Record keepers Brokers Consultants Investment advisors

SHAPING AMERICA’S RETIREMENT Page 11 DOL Concerns and Objectives Plan does not pay more than reasonable compensation for services Fiduciaries understand the fees that are being charged Fiduciaries understand the potential conflicts of interest (revenue sharing) Participant fee disclosure

SHAPING AMERICA’S RETIREMENT Page 12 Service Provider Initiatives Help plan sponsors understand: - The fees and expenses associated with maintaining their plans, particularly investment expenses - Potential service provider conflicts of interest Level the playing field among service providers through complete transparency and standardized disclosure

SHAPING AMERICA’S RETIREMENT Page 13 Service Provider Initiatives The existing DOL model disclosure should be completely overhauled - Form is complex and rarely used - Industry confusion developed during the time that form was available for use - Adding new schedules will neither improve clarity nor encourage usage - New schedule proposed by other trades provides little standardization and leaves open opportunity for abuse

SHAPING AMERICA’S RETIREMENT Page 14 Service Provider Initiatives Develop new comprehensive and standardized disclosure forms - Spreadsheet format that provides a global view of all plan costs and expenses - Provide rates and dollar estimates of embedded investment expenses - Provide rates and estimates of amount received by service providers, including revenue sharing and wrap fees - Disclose all payments including one time payments (e.g., finders fees) and expense reimbursements (e.g., travel for due diligence)

SHAPING AMERICA’S RETIREMENT Page 15 Service Provider Initiatives Comprehensive approach should include: - Industry guidelines for completing the forms - A standardized list of data points that would be provided by plan sponsors to help standardize disclosure during the bidding process and allow plan sponsors to more easily compare bids - Plan sponsor educational summary and users guide

SHAPING AMERICA’S RETIREMENT Page 16 Thank you!