The problem with shelf space payments

You like potato and I like potahto
You like tomato and I like tomahto
Potato, potahto, tomato, tomahto
Let’s call the whole thing off


Fidelity is being sued and being investigated for shelf space payments they receive from mutual fund companies for room on their fund platform. They’re not the only provider to receive these fees and I find it totally problematic. The reason it’s a problem because it is essentially a replacement for revenue sharing and while government investigators are starting to figure out about it, ERISA litigators knew before that.


This shelf space fee isn’t much of a surprise. Revenue sharing was an attractive solution for third-party administrators, especially when they didn’t have to disclose it. When fee disclosure regulations were implemented, I had stated my concern that fees would be invented in order to replace revenue sharing and possibly to skirt the fee disclosure regulations. How did I know this? I remember one third-party administrator that used to pocket revenue sharing without disclosing it, created a new fee that it was absurd, They created a daily custodial access fee of 25 basis points when any reasonable person would know that must custody fee range from 5 to 10 basis points.


Don’t be surprised that the Department of Labor won’t offer an interpretative bulletin to update their fee disclosure regulations to cover shelf space payments.

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