Fees are, of course, always a topic of interest – and there have certainly been a lot of new factors to consider in planning for the year ahead. So, what are NAPA Net readers focusing on?
Obviously, a wide variety of factors come into play – respondents to this week’s NAPA Net reader poll cited:
89% - level of services
78% - plan asset size
76% - geographic dispersion/number of locations
72% - plan design features
56% - participant count
31% - frequency of meetings, number in-person versus phone
While there were a variety of factors, when asked to name the primary factor, respondents noted:
44% - level of services
27% - plan asset size
17% - plan participant count
12% - some combination of the above
Fee Trends
But, speaking of fees, we asked NAPA Net readers if, generally speaking, had their fees gone up, down, or remained unchanged since the fiduciary rule? To which nearly two-thirds (62%) said they had remained the same, and roughly 1 out of 10 (11%) said their fees had decreased. On the other hand, 28% said those fees had increased.
As to why those fees had changed, readers noted:
47% - cost of doing business
41% - market forces
29% - value of services has risen
23% - extra work/liability associated with the fiduciary rule
But the primary reason? Market forces (31%), an increase in the value of services (25%), with "extra work/liability associated with the fiduciary rule" and "the cost of doing business" splitting the remainder.
One reader explained that they had implemented a service model offering the same or more than the provider platforms, and could therefore recommend sponsor changes, without participants seeing a change in their reports. Another said the change was due to benchmarking of their fees. And quite a number said that, having been fiduciaries before the advent of the new fiduciary regulation, it was pretty much business as usual.
As for 2018, roughly 62% said their fees would stay the same, with approximately 17% each opting for either “yes” or “not sure.”
Reader Response
As for the rationale behind the fee increases, we got a number of comments, including these:
- Requirement to add 3(21) services means a cost associated with that service.
- Most assets are going towards target date funds and most of our plans use auto enroll and auto increase. Less value an advisor can bring.
- Cost of living.
- Not only is there more work to do, requiring more time and out of pocket expenses, but the cost of capable support personnel has risen.
- We have multiple clients slated for a step up in fees, though each situation is unique and some of these may not be as amenable to an increase as others.
- We have traditionally priced our plans in the range of low to moderate but are seeing competitors coming in even lower. We are now offering DB and NonQual consulting services to offset the revenue drain from the 401(k) plans.
- We regularly adjust our hourly rates to match inflation. Doing so provides a healthy base for retaining our employees and keeping us profitable.
- The advisor industry is taking a subservient role to the provider and TPA. Ultimately we are the primary trusted advisor. Far too many in this industry take a back seat to the others.
- More sponsors are aware of the hours/work put into projects like RFPs and employee financial advice/education and these projects are typically priced separately from our standard retainer. Especially in the large marketplace ($500m+ plans).
- We refuse to participate in the great race to zero. Our participants are well serviced, which increases their retirement readiness.
Thanks to everyone who participated in our weekly NAPA Net reader poll!
