The quality of advisors and record keepers keeps increasing while fees continue to decline.
There are few, if any, other industries in which costs have declined as precipitously as in defined contribution. Computers, phones and TV prices have stayed steady, but not if you consider the incredible increase in power and capabilities. Moore’s Law is the observation that the number of transistors on a microchip doubles approximately every two years, while the cost of computers is halved.
But most costs across almost all other sectors, like food, home, automobiles, transportation, healthcare and other basics, have risen, some substantially.
Record-keeper fees rose in the 1990s as the industry shifted to retail mutual funds and annuities, enabling smaller employers to offer workers 401(k) or 403(b) plans. Those fees were mostly hidden from the plan sponsors, who did not understand revenue sharing or annuity wrappers—the plan appeared to be free.
Most record keepers offered only proprietary funds, which attracted dozens of mutual fund managers, who increased AUM at minimal costs with stickier assets. Insurance providers offering annuities made money on the spread or wrapper, which was even harder to uncover.
Participants were oblivious and happy because the stock market was booming.
Similarly, advisor compensation, mostly commissioned, was oblique, paid out of revenue sharing like 12(b)(1) fees with C shares common. Advisors were paid 1% in A shares every time they moved money.
Annuities were even worse—some advisors were making more than 1% annually, with others getting paid 3% to 4% upfront. Some clueless advisors, dubbed “blind squirrels,” were sitting on huge annual paydays while doing little to no work.
It was the Wild West in the 1990s and even the 2000s for many advisors and record keepers.
Then, a very few specialist advisors, now called RPAs, began to attack these plans, offering substantial savings while acting as fiduciaries, conducting investment due diligence—the Triple F advisor. Life was good because there were so many opportunities, and they not only relentlessly attacked advisory fees but also started conducting record-keeper RFPs, driving down fees while moving money into index funds.
The 2001 market collapse only helped wake up plans and participants to the reality of investing in high-flying tech and internet stocks cratering. The 2008-09 Great Recession was even worse, capped by a 60 Minutes segment with then PSCA Executive Director David Wray, left to explain why record-keeper fees were so high as people lost half their assets and older workers were unable to retire.
All of which led to congressional hearings led by then-U.S. Rep George Miller (D-Calif.), which eventually resulted in the 2012 Department of Labor fee disclosure rules. Even more impactful, lawyers like Jerry Schlichter started suing DC plans in 2006 and have recovered $750 million for clients since, while the DOL investigations recover even more annually.
Record-keeper consolidation resulted in many fewer, much better providers.
But the Triple F advisors had opened a Pandora’s box—if fees were so important, what about their fees? Armed with investment reporting tools and the ability to act as a fiduciary, even less experienced RPAs seemed to be able to offer similar services at a reduced cost. Index funds offered less revenue sharing, and record keepers whose fees were slashed had less money to support these advisors. Not a good look to hold advisor conferences in Bali using retirement savings.
As one fund industry told me, fees get you on first base—you cannot steal first. It’s the only variable that can be absolutely controlled.
As a result of the hyperfocus on fees, record keeper service has deteriorated, and most wealth advisors and their broker/dealers stayed away from a high liability, low margin business. A recent 401(k) Book of Averages report indicates fees continue to decline.
But the upside of this race to the bottom has been the focus on the participant, something Fidelity got early, while purist RPAs abstained from using it as a selling point. All of which has changed: record-keeper wealth service revenue, according to a McKinsey report, was $45 billion in 2023, with $38 billion from IRA rollovers, while plan fees were just $16 billion—profit margins on record keeping for larger plans were 3%!
And while DC assets continue to grow, it is mostly due to market gains, according to Morningstar, with $1 trillion rolling into IRAs, which is a real problem as more providers and advisors move to flat, not asset-based fees.
Similar issues exist for RPAs, with Fielding Miller declaring in 2018 at the inaugural RPA Aggregator Roundtable, “Our participant fees dwarf our plan fees.” The 2025 NMG Consultant study showed the issues that Triple F advisors face.
Wealth advisors with a healthy DC practice are best positioned, with the recent and stunning Fuse research showing that a majority of advisors are converting at least 6% of DC participants into clients, with larger firms converting 17% or more. All of which is attracting wealth advisors back into the DC market, as well as their broker/dealers to support them, who are desperately needed with plan formation exploding due to state mandates. Half of all wealth is hidden, according to Brandon Kawal at Advisor Growth Strategies, while most HENRYs do not have an advisor.
The DC platform has become the hub for providing advice on all aspects of a participant’s financial well-being, including selecting the right benefits. Some firms like Captrust offer one-on-one meetings at a low cost using financial coaches subsidized by the $1 million of investible assets they find, one of eight meetings, while others, like Prime Capital, move participants into their managed account, earning 30 bps. Morgan Stanley has leveraged the workplace to gather $300 billion in wealth from 2020 to 2025. Artificial intelligence will enable these coaches to work with more participants who will become the next generation of financial advisors.
The mission of DC plans should be to improve retirement income, not have the least liability, best funds or lowest cost, along with increased participation and deferral rates, all of which are important, but they should not be mistaken for the goal. Eventually, plans will need to automatically embed guaranteed income to transform DC plans from saving vehicles to a true retirement plan that replaces pensions. And eventually, healthcare and other benefits will undergo the same metamorphosis as DC plans, due in part to the 2021 CAA and lawsuits.
But the focus on the participant and wealth services would not have happened if RPAs and record keepers were getting rich on plan fees, which is why declining plan fees have been both helpful and harmful.
Facts Only
In the 1990s, 401(k) and 403(b) plan fees rose as the industry shifted to retail mutual funds and annuities, often hidden from plan sponsors through revenue sharing and annuity wrappers.
Many record keepers offered only proprietary funds, attracting mutual fund managers with minimal costs and sticky assets.
Advisor compensation was frequently commission-based, paid through revenue-sharing mechanisms like 12(b)(1) fees, with some advisors earning 1% annually or 3-4% upfront on annuities.
The 2001 market collapse and the 2008-09 Great Recession exposed high fees and poor investment outcomes, leading to congressional hearings and the 2012 Department of Labor fee disclosure rules.
Lawsuits beginning in 2006, led by attorneys like Jerry Schlichter, have recovered over $750 million for defined contribution plan participants.
Record-keeper consolidation reduced the number of providers but improved overall quality.
The focus on lowering fees led to deteriorating service quality from record keepers and reduced advisor participation due to low margins.
A 2023 McKinsey report noted record-keeper wealth service revenue reached $45 billion, with $38 billion from IRA rollovers and $16 billion from plan fees.
Fuse research found that a majority of advisors convert at least 6% of 401(k) participants into clients, with larger firms converting 17% or more.
Morgan Stanley gathered $300 billion in wealth assets through workplace channels between 2020 and 2025.
The 2021 Consolidated Appropriations Act (CAA) and ongoing lawsuits are driving changes in how retirement and healthcare benefits are structured.
Executive Summary
The evolution of 401(k) plan fees reflects a dramatic shift in the retirement savings industry over the past three decades. In the 1990s and early 2000s, fees were often opaque, embedded in revenue-sharing arrangements, proprietary funds, and annuity wrappers, with advisors and record keepers profiting substantially while participants remained unaware. The 2001 market crash and the 2008-09 financial crisis exposed these practices, leading to regulatory reforms like the 2012 Department of Labor fee disclosure rules and a wave of lawsuits that recovered hundreds of millions for plan participants. This scrutiny drove fees downward, improved transparency, and forced consolidation among record keepers, resulting in fewer but higher-quality providers.
However, the relentless focus on minimizing fees has had mixed consequences. While participants now benefit from lower costs and greater fiduciary oversight, record-keeper service quality has declined, and many wealth advisors avoided the 401(k) market due to its high liability and slim margins. Yet, the shift has also created opportunities: record keepers now generate significant revenue from wealth services, particularly IRA rollovers, and advisors are increasingly using 401(k) platforms as hubs for broader financial planning. The industry is now grappling with balancing cost efficiency against the need to improve retirement outcomes, including embedding guaranteed income solutions and expanding financial wellness programs.
Full Take
The strongest version of this narrative highlights a necessary correction in an industry that was exploiting participants through hidden fees and conflicts of interest. The shift toward transparency, fiduciary responsibility, and lower costs has democratized access to retirement savings and forced providers to compete on value rather than obfuscation. The article rightly credits regulatory pressure, lawsuits, and specialist advisors (RPAs) for driving these changes, which have undeniably benefited participants. However, the piece also acknowledges the unintended consequences: a race to the bottom on fees has eroded service quality and discouraged advisors from engaging with smaller plans, creating a gap in support for participants who need guidance the most.
Patterns detected: ARC-0024 Ambiguity (the tension between "helpful" and "harmful" outcomes is framed as a natural trade-off rather than a solvable problem), ARC-0043 Motte-and-Bailey (the argument oscillates between praising fee reductions and warning of their downsides without resolving the contradiction).
The root cause of this narrative is a paradigm shift from a sales-driven, commission-based model to a fiduciary, participant-centric one. Yet, the unstated assumption is that fees are the primary lever for improving retirement outcomes, when in reality, participation rates, deferral amounts, and investment behavior may matter more. The historical echo here is the cyclical nature of financial regulation: crises expose abuses, reforms are implemented, and then new gaps emerge as the system adapts.
The implications for human agency are significant. Participants now have more transparency but may lack the support to make informed decisions. The shift toward wealth services and IRA rollovers raises questions about whether the system is truly serving retirement security or simply repurposing retirement savings as a lead generation tool for advisors. Second-order consequences include the potential for AI-driven financial coaching to either empower participants or further commodify their financial lives.
Bridge questions: If the goal is retirement income replacement, should the focus be on fees or on outcomes like guaranteed income? How can the industry ensure that lower fees don’t come at the cost of participant engagement and education? What role should regulators play in preventing the next wave of exploitation, whether through rollovers or AI-driven advice?
Counterstrike scan: A bad actor pushing this narrative might use it to argue that regulation is inherently counterproductive, pointing to service deterioration as proof that "government interference" harms markets. However, the article does not align with this playbook—it presents the fee reductions as a net positive despite acknowledging trade-offs, and it does not advocate for deregulation. The content is structurally aligned with a reformist perspective, not a libertarian or anti-regulatory one.
Sentinel — Human
The article exhibits strong human authorship signals, including industry-specific voice, historical nuance, and idiosyncratic phrasing, with no detectable AI-generated patterns.