Skip to main content

You are here

Advertisement

Elite Plan Advisors Cooking up Small Plan Solutions

As margins continue to shrink for advisors working with mid-size and larger plans, many so-called “Elite” advisors are going back to their roots, looking to work with smaller DC plans. Let’s examine the potential solutions and barriers as well as the reasons why these Elite advisors abandoned smaller plans in the first place.

When fees are a percentage of assets, it stands to reason that more assets mean bigger fees. Not so fast — the days of offering A shares for $100 million plans are long gone. Not only has the percentage shrunk, but more plans are paying their advisor a flat fee. One Elite advisor who heads a large aggregator bemoaned at a recent industry conference that every time he sells a larger plan, the valuation of his firm shrinks.

Elites moved up market initially not just because they thought they get paid more but also because larger plans appreciate more sophisticated service models. Some did it for ego, bragging about their AUM. However, as their service model and the people behind it elevated, advisors needed to charge more — an upgrade in services that many smaller plans didn’t value and weren’t willing to pay for.

As Elite advisors look to start selling to smaller plans, they know they need to create models not just for investments but also for services provided. They are discussing with record keepers the possibilities around creating private label programs, where all clients fit into just a few preformatted models, be that as a multiple employer plan (MEP), an 8100 trust or just a cookie-cutter model. Sounds reasonable and logical.

But just as mid-market providers have failed when they tried to move down market, Elite advisors will struggle trying to service smaller plans, for two reasons. First, it takes discipline and business acumen to stay within the model and create a smooth running operation to execute.

Secondly, as with those mid-market record keepers, it’s hard to tell — or to get — servicing staff to treat smaller plans dramatically differently than other clients. It’s almost impossible unless you create separate organizations. If mid-market record keepers with significantly larger staff couldn’t pull it off, why would you think advisory firms can?

Advertisement