Oppenheimer Impact of Fee Disclosure

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Regulatory Serendipity: Fee Disclosure Generates Optimism and Opportunity

2

About the Survey

Goal of the survey: To gauge the impact of fee disclosure regulations on plan sponsors and participants

Fielded: September 2012

Respondent base: Decision makers from an independent panel of retirement plan sponsors

Methodology: Online, 44 question survey

Respondents: 200 randomly selected plan sponsors:

Plan Type Total Employees Total Respondents

Micro plans <100 employees 42 respondents

Small plans 100-499 employees 42 respondents

Mid-size plans 500-999 employees 39 respondents

Large plans 1,000-4,999 employees 42 respondents

Mega plans 5,000+ employees 35 respondents

3

Agenda Executive summary

Importance of fees in hiring process

Pop quiz: How well do plan sponsors understand requirements?

Impact of fee disclosure

Opportunities

4

Executive Summary

References to disclosures generally cover both 408(b)(2) and participant-level disclosure, unless context clearly relates to only one disclosure rule.

In September 2012, shortly after the first service provider and participant disclosures were delivered to

plan sponsors and participants, OppenheimerFunds conducted a nationwide survey of 200 retirement plan

sponsors to gauge the impact of the fee disclosure regulations. The survey results show that plan

sponsors are largely positive about the information being disclosed. They perceive benefits to themselves

and their participants.

Substantially more plan sponsors believe that the benefits of fee disclosure already do or ultimately will

outweigh the drawbacks (66%) compared with those who believe the drawbacks will outweigh the benefits

(27%). More than one-third said that disclosure of fees is a positive change and nearly one-third said that

the disclosures make their lives easier. While plan sponsors see several benefits, key among them are:

Disclosures help them meet their fiduciary responsibilities

Improved provider transparency

Disclosures help them to better understand fees relative to services and make educated decisions about providers

5

Executive Summary

Most plan sponsors also see drawbacks. Sponsors cited time consumption, use of resources that could

be better used for other purposes and an increase in participants challenging plan decisions as top

drawbacks.

Sponsors also believe the disclosures hold several benefits for participants, including participants:

Feeling more educated about the plan

Having an increased trust of the plan sponsor

Better understanding the purpose of fees

Being more familiar with the plan

6

Executive Summary

Many sponsors realize that despite having a clear picture of fees, they still need to assess the value of

services—48% believe that providers with the lowest fees do not always provide the best value.

However, the converse is not well-accepted; only 4% of sponsors believe that higher fees can indicate

higher value.

Despite plan sponsors’ general level of optimism and empowerment, most admit that they are not

confident that they know what to do with the information received. Only 20% of respondents are very

confident. This represents a tremendous opportunity for advisors to provide guidance and support. And

sponsors actually understand less about the disclosure requirements than they think—assistance is

needed to help them understand and properly fulfill their obligations.

A strong majority of plan sponsors did not know how often plan providers are required to furnish information.

And just 9% of plan sponsors surveyed knew the three steps that must be taken if they do not receive adequate disclosures.

7

Executive Summary

The fee disclosure requirements also offer an opportunity to engage with participants. Plan sponsors are

particularly concerned that participants will be drawn to the least expensive investments—without regard

for asset allocation, services or investment style.

To help participants with concerns raised by fee disclosure, plan sponsors have already taken several

steps—or plan initiatives within the next year—including:

Reminding employees whom to contact with questions

Providing materials created by the provider or advisor

Offering a meeting to discuss plan fees

Adding resources to respond to employee inquiries

8

Agenda Executive Summary


Pop quiz—how well do sponsor understand requirements?


Opportunities

9

Fees Have Major Impact on Provider Hiring

Source of chart data: OppenheimerFunds’ Post-Fee Disclosure Survey, September 2012

When asked to allocate 100 points to various plan provider selection criteria, sponsors allocated the most points to fees—an average of 22.2 points, almost as much as service quality and the provider’s capabilities combined. This emphasis on fees over value could lead to increased fee compression; providers must articulate their differentiation or risk being commoditized.

1.3

6.0

6.3

10.4

12.9

13.2

13.7

14.1

22.2

0 5 10 15 20 25

Other

Innovative Services

Quality of Technology

Compliance Capabilities

Investment Philosphy

Existing Relationship

Recordkeeping Capabilities

Timely and Accurate Service

Plan Provider Fees

Allocation of points out of 100

Prioritization of considerations when hiring plan provider

10

Advisors and Performance Drive Fund Lineups

Advisors play a key role in selection of investment options, and their recommendations are more highly considered than even historical performance. While fund fees are important, they are not the most critical selection driver.

2.0

5.0

6.6

8.0

8.5

8.5

11.1

13.8

17.5

19.0

0 5 10 15 20

Other

Services Offered by Company

Portfolio Managers

Risk Management Process

Provider Preferred List

Familiarity with Company

Investment Philosophy

Fund Fees

Historical Performance

Recommendation from Advisor


Prioritization of considerations when selecting investment options for plan lineup


11

Advisor Fees, Philosophy and Services are Key Drivers Fees are the most important driver of advisor selection, although they are not identified as such a dominant criteria as they are for the plan’s recordkeeper. Many additional factors are considered almost equally important, such as investment philosophy and services. Advisors will need to demonstrate their value to substantiate their fees and, given the importance of services offered, a menu-driven approach to pricing might be optimal.

4.2

7.8

11.9

13.1

13.6

15.5

16.5

17.4

0 2 4 6 8 10 12 14 16 18 20

Other

Existing Client Base

Recommendations

Will Act as Fiduciary

Structure of Fees

Services Offered

Investment Philosophy

Level of Fees


Prioritization of considerations when selecting a plan advisor


12

Plan Sponsors are Willing to Pay a Premium for Active Management and Recordkeeping


80% of sponsors are willing to pay a premium for certain services, with active investment management viewed as most spend-worthy. Superior recordkeeping services from providers are also seen as deserving of higher fees, as are fiduciary investment services from advisors. But for 20% of respondents, low fees are paramount.

20%

1%

28%

28%

36%

40%

42%

0% 10% 20% 30% 40% 50%

None

Other

In-person Presentations

Customized EmployeeEducation

Fiduciary Investment Services


Active Management

Percent of Sponsors Selecting

Services for Which Sponsors are Willing to Pay a

Premium

Plans with more than 500 employees are more likely to pay a premium for active management, perhaps reflecting more expertise or resources focused on investment strategy.

26%

33%

46%

55% 51%

Micro Plan<100 Ees

Small Plan100-499 Ees

Mid-Size500-999 Ees

Large Plan1,000-4,999

Ees

Mega Plan:5,000+ Ees

Pe

rce

nt of S

ponsors

Larger Plans are More Willing to Pay Premium for Active

Investment Management.

Active Management


Fiduciary Investment

Services

Customized Employee

Education

In-person Presentations

Other

None

13





Opportunities

14

Plan Sponsors Need Better Understanding of Requirements


:

74% of sponsors believe they know all of the fee disclosure requirements, while 24% admit they don’t really know them and 3% don’t know them at all. But do those who think they know the requirements really understand them?

I Know Them Very Well 16%

I Know Them Somewhat Well

58%

I Don't Really Know Them

24%

I Don't Know Them at All 3%

How well do you know all of the requirements of fee disclosure regulations?

15

Pop Quiz: “Investment-Related Information Must be Furnished…”


8%

21%

50%

9% 7% 7%

I Don't Know Annually Quarterly Within 90 Daysof Any Change

Within 60 Daysof Any Change

Within 30 Daysof Any Change

Pe

rcen

t o

f S

po

nso

rs

Only 21% of sponsors knew that participant disclosure information was required to be furnished

annually—and only 7% knew that it needed to be updated within 60 days of any change.

16

Pop Quiz: “If My Provider Does Not Provide Adequate Disclosures, I Must…”

1DrinkerBiddle Client Bulletin, July 2012


15%

3%

30%

20%

64%

I Don't Know I'm Not Obligated toFollow-Up

Report Provider toDOL

Terminate theRelationship

Request Informationfrom Provider

Pe

rcen

t o

f S

po

nso

rs

A large number of respondents were aware of at least some of the steps necessary if they did not receive

adequate information from their service providers, although just 9% knew all three required measures if

the covered service provider does not provide timely and adequate disclosures. Plan sponsors who fail to

engage in a prudent evaluation process, or fail to identify and act upon missing or deficient disclosures,

will be subject to a fiduciary breach and possible prohibited transaction.1

Just 9% of Sponsors Selected All 3 Correct Answers

17





Opportunities

18

Most Sponsors Feel Some Impact from Fee Disclosure


Significant Impact 12%

Slight Impact 63%

No Impact 16%

Too Early to Tell 10%

Significant Impact

8%

Slight Impact 45%

No Impact 36%

Too Early to Tell 12%

Impact on participants Impact on sponsors

The majority of sponsors believe that fee disclosure regulations will have an impact on both themselves and participants, with sponsors expected to be more greatly affected.

19

Plan Sponsors See More Benefits to Fee Disclosure than Drawbacks

Are there major benefits? Are there major drawbacks?


43%

62%

Major Benefit to Sponsors

Major Benefit to Participants

25% 27%

Major Drawback to Sponsors

Major Drawback to Participants

Pe

rcen

t o

f S

po

nso

rs

Plan sponsors see more benefits than drawbacks, with more benefits accruing to participants.

Respondents say that fee disclosure has: increased trust in providers, helped them determine fee

reasonableness, helped them carry out fiduciary responsibilities, made their lives easier and better

equipped them to talk to employees about their plan. Larger plan sponsors are more likely than

smaller plan sponsors to recognize all of these benefits.

20

Fee Disclosure Helps Sponsors Meet their Fiduciary Responsibilities


Plan sponsors see several benefits to fee disclosures, most notably help with meeting fiduciary responsibilities and improved provider transparency, as well as providing a better understanding of fees relative to services.

4.00%

1.00%

4.50%

7.30%

8.00%

9.00%

10.90%

11.30%

13.00%

17.20%

17.70%

0.00% 10.00% 20.00%

No Benefit to Sponsor

Other

Participants Challenge Decisions Less

Helps with Fund Lineup Decisions

Provides Material for Participant Conversations

Reduces Time Spent Gathering Information

Helps with Plan Provider Decisions

Better Understanding of Fee Sources

Better Understanding of Fees Relative to Services

Increased Provider Transparency

Helps Me Meet Fiduciary Responsibilities

What are benefits to plan sponsors?

Percent of sponsors

21

… But Fee Disclosure Consumes Time and Other Resources


Yet plan sponsors realize that these benefits may come at a cost in terms of the time and resources spent evaluating and implementing the requirements. Many are concerned about the level of detail, and also anticipate that employees may begin to question aspects of the plan. Advisors who can help these sponsors plot a course of action, document decisions and develop a strategy for responding to participant inquiries can help plans save time and resources.

15.00%

5.90%

10.80%

14.20%

14.50%

14.80%

19.30%

20.60%

0.00% 10.00% 20.00% 30.00%

No Drawback to Sponsor

Other

Disclosures are Not Detailed Enough

Disclosures Provide Too Much Detail

Disclosures are Costly to Implement

Participants Increasingly Challenge Decisions

Disclosures Consume Resources that Could Be Usedfor Other Plan Purposes

Disclosures are Time Consuming

Percent of sponsors

What are drawbacks to plan sponsors?

Disclosures Consume Resources that Could Be Used

for Other Plan Purposes

22

Participant Engagement Has Improved with Fee Disclosure

19%

31%

41% 45%

49% 38%

43%

54%

62%

54%

Micro Plan <100 Ees Small Plan100-499 Ees Mid-Size 500-999 Ees Large Plan 1.000-4,999 Ees Mega Plan 5,000+ Ees

Employee Engagement Before Fee Disclosure Employee Engagement After Fee Disclosure

The fee disclosure regulations have cast a spotlight on retirement savings plans. This has had a

positive result—a marked increase in engagement among employees. Plan sponsors, providers

and advisors should take advantage of this heightened level of engagement to drive saving and

investment messages designed to improve retirement funding success.

Employee engagement before and after fee disclosure


23

Fee Disclosure Benefits Participants


The fee disclosure regulations have helped plan participants feel more educated about the plan and helped instill greater trust in plan sponsors—among other benefits. These regulations have the potential to energize discussions about retirement savings─rather than just fees─and further engage participants to potentially improve saving and investment outcomes.

9.00%

1.00%

9.90%

12.10%

13.30%

13.80%

15.40%

16.00%

18.50%

0.00% 10.00% 20.00%

No Benefit to Participants

Other

Reduces Time Participants Spend Gathering Information

Appreciation for Value of Plan

Empowered to Make Decisions

Increased Familiarity with Plan

Understand Purpose of Fees

Increased Trust of Plan Sponsors

Feel More Educated About Plan

Percent of sponsors

What are the benefits to participants?

24

… But Fees are Still Confusing


As the benefits to participants present an opportunity for enhanced dialogue, so do the drawbacks. Plan sponsors are particularly concerned that participants will be drawn to the least expensive investments—without regard for asset allocation, services or investment style. Educational programs that help plan participants understand fees and their context are likely to be welcomed.

23.00%

3.60%

9.10%

10.30%

16.20%

18.50%

18.60%

23.60%

0.00% 10.00% 20.00% 30.00%

No Drawback to Participants

Other

Participants are Not Sure How to Select Funds

Participants are Upset Over Level of Fees

Question Fees Without Perspective

Drawn to Funds with Lowest Fees Without Regard for Services,Investment Style

Drawn to Lowest Fees Without Consideration for Asset Allocation

Fees are Confusing to Participants

Percent of sponsors

What are drawbacks to participants?

Drawn to Funds with Lowest Fees Without Regard for Services,

Investment Style

25



Pop quiz—how well do sponsors understand requirements?


Opportunities

26

The New Value Imperative

Plan sponsor agreement with statements

Rating of 7 indicates that respondents agree completely with the statement

Percent of Sponsors

Rating 6 or 7 out of 7

Providers with lowest fees do not always provide best value 48%

Fee disclosures help me carry out fiduciary responsibilities 39%

The disclosures make it easier for me to assess how reasonable plan’s fees and services are 37%

Fee disclosures are a positive change 36%

Fee disclosures make my life easier 31%

I feel better equipped to talk to employees about the plan 25%

Fee disclosures are confusing 24%

Disclosures have increased my trust in providers 22%

Fee disclosures are costly 18%

Higher fees can indicate higher value 4%


Many sponsors realize that despite having a clear picture of fees, they still need to assess the value of

services—48% believe that providers with the lowest fees do not always provide the best value. However,

the converse is not well-accepted; only 4% of sponsors believe that higher fees can indicate higher value.

This leads to a value imperative—providers and advisors must be prepared to clearly articulate the value

they offer for the fees they charge. Indeed, fees should be evaluated in the context of the quality and the

effectiveness of the service.

27

Plan Sponsors Need Help with Next Steps


Despite plan sponsors’ general level of optimism and empowerment, only 20% of respondents are very confident about what to do next, and 31% either don’t know what to do, need more guidance, or claim they haven’t received anything yet. Approaching these plan sponsors with an action plan for dealing with fee disclosures provides opportunity for advisors to demonstrate their value.

I am Very Confident I Know What to Do

20%

I am Somewhat Confident I Know

What to Do 50%

I Need More Guidance on What to

Do 26%

I Don't Know What to Do 3%

I Haven’t Received Any Disclosures

2%

Which best describes how you feel about disclosures?

28

Majority of Sponsors are Looking for Help Working Through Disclosures


Only 22% of sponsors do not feel they need help working through disclosures. Many of the others are looking for a variety of education touch points, providing an excellent opportunity for advisors to provide real consultative support to help remove some of burdens perceived by their clients.

Materials/ Collateral 29%

Meetings/ Education/ Webinars

18% Online Education 10%

No Need for Help 22%

Not Sure 4%

Other 17%

How can advisors, investment managers and providers help sponsors?

29

Sponsors are Helping Participants Understand Fees


Plan sponsors have taken—or plan to take—a wide variety of actions to help participants work through

disclosures. Larger plans—likely because they tend to have more resources—are planning a more

proactive approach. Advisors and retirement plan providers are well-suited to provide many of these

services—and take the opportunity to expand the conversation beyond fee disclosure to helping improve

retirement saving and investing outcomes.

65%

56%

50%

31%

28%

31%

33%

36%

41%

34%

0% 50% 100%

Remind Employees Who toContact with Questions

Provide Materials Created byProvider

Provide Materials Created byAdvisor

Offer a Meeting to Review Fees

Add Resources to Respond toEmployee Inquiries

Have Done Plan Within Next Year

What have you done/plan to do to help participants?

Remind Employees Who to

Contact with Questions

Provide Materials Created by

Provider

Provide Materials Created by

Advisor

Offer a Meeting to Review Fees

Add Resources to Respond to

Employee Inquiries

30

Plan Sponsors Considering Many Initiatives in Response to Fee Disclosure


Actions Being Considered Percent of Sponsors

Renegotiating Fees with Provider 24%

Requesting More Services from Provider 23%

Requesting More Services from Advisor 20%

Changing to Funds Where Fees are Aligned to Value They Add 20%

Benchmarking the Plan 19%

Enhancing Investment Lineup Evaluation Process 17%

Renegotiating Fees with Advisor 17%

Switching to Funds With Lower Fees From Current Investment Manager 16%

Enhancing Provider Evaluation Process 15%

Switching to Funds With Lower Fees From Investment Manager Not Currently in Lineup 14%

Replacing Advisor 11%

Changing Plan Provider 10%

Decreasing Use of Advisors 9%

Plan sponsors anticipate a wide variety of actions in response to fee disclosure, chief among them

renegotiating fees with advisors and providers, along with asking for more services. There is also a fair

amount of interest in reviewing funds and lineups. Opportunity abounds for advisors and providers who

recognize the value imperative─and can demonstrate theirs.

31

Participants Expected to Flock to Funds with Lower Fees


80% of sponsors surveyed expect their participants to move to funds with lower fees, or at least better align their investments to reflect the best value in terms of performance and fees. Interestingly, 45% expect that these disclosures will result in participants increasing their plan contributions, a perhaps unanticipated yet very positive result of the disclosure effort.

28%

17%

11%

20%

11%

54%

49%

44%

27%

19%

Move to Funds with Lower Fees

Move to Funds Aligned withValue Provided*

Shift from Mutual Funds toOther Plan Options

Increase Plan Contributions

Decrease Plan Contributions

Have Done Expected Behavior—Within Next Year

*For example, may be willing to pay higher fees if the fund offers higher returns or better service

What have your participants done/what do you expect them to do over next year?

Move to Funds Aligned with

Value Provided*

Shift from Mutual Funds to

Other Plan Options

32

Conclusion

Plan sponsors are generally more positive about fee disclosure than one might expect. But their

knowledge of their obligations is questionable. They want—and need—help from their providers and

advisors, providing a unique opportunity to engage with both sponsor and participants.

The outcome of the disclosure regime does not need to be a “race to the bottom.” Eighty percent of plan

sponsors can identify services that they recognize as valuable─and for which they are willing to pay a

premium. Advisors and providers alike must seize the opportunity to differentiate themselves, clearly

define their value and demonstrate their expertise and their worth.

33

Disclosures

Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other

agency, and involve investment risks, including the possible loss of the principal amount invested.

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that

may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.

Before investing in any of the Oppenheimer funds, investors should carefully consider a fund’s investment objectives, risks, charges

and expenses. Fund prospectuses and if available, summary prospectuses contain this and other information about the funds, and may

be obtained by asking your financial advisor, visiting our website at oppenheimerfunds.com or calling us at 1.800.CALL OPP (225.5677).

Read prospectuses and if available, summary prospectuses carefully before investing.

Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc.

Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008

© 2012 OppenheimerFunds Distributor, Inc. All rights reserved.

RPL0000.074.1112 November 2012

Oppenheimer Impact of Fee Disclosure

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