The final Department of Labor fiduciary rules introduced earlier this year are expected to have a profound impact on financial advisors. While much of the focus has been on what will happen to individual clients and their retirement accounts such as IRAs, the impact on 401(k) plans and their advisors could also be significant.

Here is a list of 401(k)-related points that may need some type of change with the new rules. (For more, see: SEC Fiduciary Rule: How to Explain It to Clients.

Revenue Sharing

Revenue sharing is a common practice in the 401(k) world where many mutual funds and other investment managers essentially pay to play on many 401(k) platforms. These payments can take the form of 12b-1 fees or a host of other indirect payments. Technically these payments do not increase the expense ratios of the underlying mutual funds. However, the share classes with the highest 12b-1 fees often carry hefty expense ratios as well.

401(k) Lawsuits

Even prior to the introduction of the new fiduciary rules, there are have been a number of high-profile lawsuits brought against 401(k) plan sponsors in recent years. Generally, they all deal with excessive fees in one way or another. Several have directly targeted the revenue sharing procedures of 401(k) platform providers.

The money generated from revenue sharing actually belongs to the plan participants. In fact, this money can be directed back to the plan participants to reduce the expanses charged against their accounts and to boost their account balances. In most cases, however, this money is directed to pay the costs of service providers such as record keepers, administrators and financial advisors.

Even with mandated annual 408(b)(2) fee disclosures to participants that began in 2012, there are likely few, if any, participants who understand that revenue sharing exists and what it is used for. (For more, see: Impact of Fiduciary Rules on 401(k) Advisors.)

New Trend Towards Zero Revenue Sharing

Cited in a recent InvestmentNews article, investment consulting firm Callan Associates indicated that 52% of defined contribution retirement plan sponsors used revenue sharing to cover some or all of their plan’s administrative cost. This is down, however, from 67% as recently as 2012, said Callan.

The use of zero revenue sharing mutual fund share classes has been increasing in recent years. The R6 share class (or similar share classes) offered by the American Funds and a number of other fund companies has become more popular of late. These low-cost retirement plan share classes strip out the 12b-1 fees and other revenue sharing. According to the InvestmentNews article, 72% of the plan assets held in various forms of the R share classes were in versions with no 12b-1 fee in 2015, up from 56% in 2012.

Under a zero revenue sharing arrangement, the plan’s participants would pay only the cost of investment management—in other words, the expense ratios of the mutual funds or other underlying investment options in the plan. Costs for other services, such as record keeping, administration and the cost of an outside financial advisor would be billed to the plan and show as separate line items either as direct costs or as a percentage fee.

Level vs. Variable Fees

Under the new DoL fiduciary rules, financial advisors who receive variable compensation from sources like commissions of 12b-1 fees are subject to a higher level of disclosure and increased risk from litigation. This includes those who serve as advisors to 401(k) plans. Examples of level fee arrangements can include a flat, fixed advisory fee or a fee based on a percentage of the plan’s assets. Financial advisors who still wish to charge a plan based on a variable fee like a 12b-1 would need to complete the Best Interest Contract Exemption (BICE) disclosure form. A BICE disclosure form is not required for level fee arrangements, according to ERISA attorney Marcia Wagner. (For more, see: How Advisors Can Plan for Fiduciary Rule Changes.)

The movement towards greater fee transparency began with advent of required fee reporting by plan sponsors under the 408 (b)(2) rules. This has accelerated even more with growth in the number of lawsuits against plan sponsors over fees and now with the issuance of the final DoL fiduciary rules.

Controlling Expenses Is Still Key

It would seem automatic that plans with zero revenue sharing would now be safe from scrutiny, but zero revenue sharing alone does not ensure that mutual fund expense ratios are still as low as they can be or that the funds offered to plan participants represent a solid lineup. Additionally, transparency in administrative costs also doesn’t ensure that these fees are reasonable or that the services provided are in the best interests of the plan participants. Financial advisors serving plan sponsors will still need to perform appropriate due diligence on the investments offered and the fees and quality of other plan service providers as in the past.

The Bottom Line

The new DoL Fiduciary rules announced earlier this year will have a wide-ranging impact on financial advisors including those who serve as advisors to 401(k) and other defined contribution plans. The movement towards great fee transparency that started several years ago is likely to accelerate including in the area of revenue sharing. (For more, see: The DoL Fiduciary Rule: What Advisors, Clients Should Know.)