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Tips on Negotiating Fees

While advisor fees have gotten a lot more “reasonable” – meaning lower – in recent years, greater litigation risks resulting from the DOL's final fiduciary rule may create a counterweight, exerting upward pressure on fees, according to CapTrust's James E. (“Jeb”) Graham.

Graham offered his take on best practices in effective fee negotiating at an April 17 workshop session at the NAPA 401(k) Summit in Nashville. He was joined by panelists Douglas G. Prince, Principal and CEO of ProCourse Fiduciary Advisors, and Tim B. DiSette of Trinity Planning Group, LLC.

The trio identified the four factors that affect fees:


  • Scope of service

  • Cost of service, e.g., overhead and size of the service team)

  • Profit margin

  • Industry comps for fees and services


Scope of Service

At ProCourse, Prince said, about 90% of their clients are full-service, and the rest (mostly small plans, with the CFO typically responsible for HR) are in the stripped-down, “lite” version. Participant education is priced separately because of the legal risk they perceive in offering a certain number of onsite participant days, but subsequently delivering fewer days for one reason or another.

At ProCourse, it's standard practice to map out ROI for each step in the client service process. “This helps us find inefficiencies and improve them,” said Prince.

At ProCourse, said Prince, they spent a lot of time determining the core services they will offer, and their business is focused on those core services. The firm was built in the $2-$50 million space, but is committed to growth, he says. ProCourse offers three basic services models, and adjusts fees with each add-on.

Value Prop

In communicating the firm's value proposition, DiSette says, “it's important to play offense, not defense.” For example, Trinity documents all meetings and participant calls into the service center. Then, at the annual fiduciary review meeting, DiSette says, “I turn the laptop around and show the committee the detailed logs” of how each caller's concerns were resolved. “We all do so much work,” DiSette  says, “but the CEO and CFO are too busy to see how much we do.”

Graham agrees with the importance of sweating these kinds of details. “If you're not doing this kind of thing,” he asserts, “you should be.”

Be Ready with an Answer

How do you justify your fee calculations to the CEO? “You need to have an answer to that question,” admonished Graham. He recommends describing the calculation as “part fixed, and part variable.” Your fee has to cover your fixed costs; “You shouldn't take the case otherwise.” The variable cost, he explained, is essentially a fiduciary risk premium. Additionally, it's important to factor in complexities like location, which can necessitate higher-than-average travel expenses, he noted.

From Asset-Based to Flat Fee

All of ProCourse's clients are now on a hard-dollar fee arrangement, says Prince. At Trinity, said DiSette, two-thirds are a flat fee basis, with an automatic 3% annual cost-of-living increase. The firm will also lower its fees where that's appropriate, he noted. As for when asset-based fees may still be the right choice in the small plan market, DiSette suggested that they may be most appropriate for small, growing firms.

The RFP as Time-Waster

The panelists agreed that dealing with RFPs in cases where advisors are being used to benchmark the current advisor's fees, or when the choice is predetermined, can be a frustrating waste of time. DiSette has a set of pointed questions for the plan sponsor (or, increasingly, consultant or law firm) that has issued the RFP, and won't respond to the RFP without satisfactory answers.

DiSette recommends using LinkedIn to look for professional relationships between execs at the plan sponsor and other advisors. This can serve two purposes: as a way to flag potentially “wired” RFPs, as well as helping you win the case by flagging third party professional connections linking you to the decisionmakers at the plan sponsor.

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