{"id":8481,"date":"2021-05-21T09:07:26","date_gmt":"2021-05-21T14:07:26","guid":{"rendered":"https:\/\/rixtrema.com\/blog\/?p=8481"},"modified":"2022-02-24T08:45:27","modified_gmt":"2022-02-24T13:45:27","slug":"reconsider-adding-revenue-sharing-funds-to-your-investment-menu","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/reconsider-adding-revenue-sharing-funds-to-your-investment-menu\/","title":{"rendered":"Reconsider Adding Revenue-Sharing Funds To Your Investment Menu"},"content":{"rendered":"\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-nk-awb nk-awb\"><div class=\"nk-awb-wrap\" data-awb-type=\"color\"><div class=\"nk-awb-overlay is-layout-constrained wp-block-nk-awb-is-layout-constrained\" style=\"background-color: rgba(76, 205, 138, 0.37);\"><\/div><\/div>\n<ul class=\"wp-block-list\"><li><strong><a href=\"#Revenue\">Revenue-sharing plans are usually more expensive<\/a><\/strong><\/li><li><strong><a href=\"#Rebates\">Rebates increase with the market power of the recordkeeper<\/a><\/strong><\/li><li><strong><a href=\"#funds\">Third-party funds may revenue-share to gain access to retirement assets<\/a><\/strong><\/li><\/ul>\n<\/div>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">Revenue-sharing funds often appear very lucrative, they can be found on many investment menus in retirement plans. \u201cRetirement plans are among the most important distribution channels for mutual funds,\u201d according to research by the Investment Company Institute (ICI). However, you may want to consider removing revenue-sharing plans from the investment menu, as they actually increase your spending and lower income.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In a <\/span><a href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3752296\"><span style=\"font-weight: 400;\">recent study<\/span><\/a><span style=\"font-weight: 400;\"> by Vanderbilt University, the University of Texas at Austin and the Board of Governors of the Federal Reserve System, revenue-sharing funds were proven to be costlier for plan participants while being more beneficial to the recordkeepers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here are some reasons why revenue-sharing funds might be a bad choice:<a id=\"Revenue\"><\/a><\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>Revenue-sharing plans are usually more expensive&nbsp;<\/strong><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Researchers found that the revenue-sharing funds and non-revenue-sharing funds are very similar. While total administrative fees remain almost the same for both fund types, the rebates in revenue-sharing plans lead to higher value-weighted expense ratios of the investment options. Thus, participants of revenue-sharing plans have to pay higher all-in fees. The researchers also took into account possible higher returns connected with higher fees in revenue-sharing plans, but instead found that revenue-sharing plans underperformed.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19.png\" data-rel=\"lightbox-image-0\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-8483 alignnone\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19.png\" alt=\"\" width=\"712\" height=\"516\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19.png 1068w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19-300x217.png 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19-1024x742.png 1024w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19-768x557.png 768w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19-500x362.png 500w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/1-min-19-800x580.png 800w\" sizes=\"auto, (max-width: 712px) 100vw, 712px\" \/><\/a><a id=\"Rebates\"><\/a><\/p>\n<p><em>Figure 1: The distribution of expense ratios for revenue-sharing and non-sharing funds.<\/em><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>Rebates increase with the market power of the recordkeeper<\/strong><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The other issue in revenue-sharing plans is a rebate. According to the study, recordkeepers received a rebate as a revenue-sharing arrangement from at least one fund on the menu in about 54% of the plans. The same applies to the recordkeepers who are also third-party fund managers in revenue-sharing plans, managed by other recordkeepers.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The influence of the recordkeeper on the management company is also important as it gives an opportunity to get a higher rebate. According to research, the degree of influence is significantly related to the revenue share. Specifically, the more central network of recordkeeper families that service 401 (k) plans is the higher the rebates are.&nbsp;<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209.png\" data-rel=\"lightbox-image-1\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-8484 size-full\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209.png\" alt=\"\" width=\"986\" height=\"803\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209.png 986w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209-300x244.png 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209-768x625.png 768w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209-500x407.png 500w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/05\/2-min-17-e1621607361209-800x652.png 800w\" sizes=\"auto, (max-width: 986px) 100vw, 986px\" \/><\/a><\/span><em>Figure 2: Network connections between recordkeepers and third-party mutual funds.<\/em><\/p>\n<p>&nbsp;<\/p>\n<h2><strong><a id=\"funds\"><\/a>Third-party funds may revenue-share to gain access to retirement assets<\/strong><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The researchers also found that recordkeepers may form reciprocal relationships to take turns being the recordkeeper in order to reduce the size of revenue sharing. Moreover, third-party funds may decide to revenue-share to gain access to retirement assets because recordkeepers allow that.&nbsp;<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">All in all, the research indicates that revenue sharing plans are typically costlier for plan participants and are less likely to be deleted from the investment menu. Since this aspect often appears less transparent, plan recordkeepers and intermediaries might be able to overcharge plan participants. Financial advisors need to be aware of this connection to make responsible decisions and build a lasting relationship with plan sponsors.&nbsp;&nbsp;<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Our 401kFiduciaryOptimizer software can help financial advisors better analyze revenue-sharing fees with specific reports. <\/span><a href=\"https:\/\/rixtrema.net\/401k\/index\"><span style=\"font-weight: 400;\">Schedule a Demo<\/span><\/a><span style=\"font-weight: 400;\"> with us to see how you can optimize revenue-sharing plans or reach out to <\/span><a href=\"mailto:clientsuccess@rixtrema.com\"><span style=\"font-weight: 400;\">clientsuccess@rixtrema.com<\/span><\/a><span style=\"font-weight: 400;\"> to set up a demo.<\/span><\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/rixtrema.net\/401k\/index?source=TatianaN-21-05-2021\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"256\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/04\/banner-401k-min.jpg\" alt=\"\" class=\"wp-image-7798\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/04\/banner-401k-min.jpg 700w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/04\/banner-401k-min-300x110.jpg 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2021\/04\/banner-401k-min-500x183.jpg 500w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/figure>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n","protected":false},"excerpt":{"rendered":"<p>You may want to consider removing revenue-sharing plans from the investment menu, as they actually increase your spending and lower income.<\/p>\n","protected":false},"author":24,"featured_media":9727,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[211],"tags":[42,7,11,172,2152],"class_list":["post-8481","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-401k-fiduciaryoptimizer","tag-401k-plan","tag-financial-advisor","tag-financial-advisor-tools","tag-retirement-plan-advisors","tag-revenue-sharing"],"jetpack_featured_media_url":"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2022\/02\/39-scaled.jpg","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v15.9.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Reconsider Adding Revenue-Sharing Funds To Your Investment Menu<\/title>\n<meta name=\"description\" content=\"You may want to consider removing revenue-sharing plans from the investment menu, as they actually increase your spending and lower income.\" \/>\n<link rel=\"canonical\" href=\"https:\/\/rixtrema.com\/blog\/reconsider-adding-revenue-sharing-funds-to-your-investment-menu\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reconsider Adding Revenue-Sharing Funds To Your Investment Menu\" \/>\n<meta property=\"og:description\" content=\"You may want to consider removing revenue-sharing plans from the investment menu, as they actually increase your spending and lower income.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/rixtrema.com\/blog\/reconsider-adding-revenue-sharing-funds-to-your-investment-menu\/\" \/>\n<meta property=\"og:site_name\" content=\"RiXtrema.com\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/LarkspurRiXtrema\/\" \/>\n<meta property=\"article:published_time\" content=\"2021-05-21T14:07:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-02-24T13:45:27+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2022\/02\/39-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1463\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@RiXtrema\" \/>\n<meta name=\"twitter:site\" content=\"@RiXtrema\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\">\n\t<meta name=\"twitter:data1\" content=\"3 minutes\">\n<!-- \/ Yoast SEO Premium plugin. -->","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/8481","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/users\/24"}],"replies":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/comments?post=8481"}],"version-history":[{"count":8,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/8481\/revisions"}],"predecessor-version":[{"id":9730,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/8481\/revisions\/9730"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/media\/9727"}],"wp:attachment":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/media?parent=8481"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/categories?post=8481"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/tags?post=8481"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}