The debate about the fiduciary rule was certainly focused on fees, and fee structures – and excessive fee litigation has certainly taken issue with how (and how much) certain providers charged. But how – or has - it impacted NAPA Net readers?
A majority of this week’s respondents (56%) charge based on a percentage of plan assets, while another one in five scale their fee(s) based on plan assets. Another 16% charge a flat fee, while the rest worked with some type of hybrid that included both a base fee, with some form of asset-based addition.
‘Change' Parse?
As for whether that had changed in the past two years, while 36% said it hadn’t, and 12% said it had, most – and here we’re talking about 52% – said that it had changed for some clients, but not for others.
We asked readers if it had changed why – and, allowing for multiple answers, they responded:
47% - competitive forces
42% - serving different clients/markets
32% - different business model
26% - change in fiduciary status
11% - offering more services
7% - desire to provider greater transparency
5% - changed firms
“In the past two years I have added multiple models to my advisory fee,” explained one reader. “I know have clients who pay my fee directly, pay a flat fee, pay a tiered fee and we have started a la carte pricing with our larger opportunities ($100M+).”
As for the services provided along with those fees, readers told us they had:
28% - mostly stayed the same
24% - mostly haven’t changed
24% - increased, for the most part
20% - now offer more services
4% - not changed
Plan Sponsor Perspectives
Regarding the perspectives of their plan sponsor clients and prospects on fees, readers observed that they:
68% - are more fee conscious than in the past
36% - are more willing to pay a flat fee for advisory services than in the past
32% - don't really seem to be any more or less willing to pay advisory fees from plan assets than they used to.
12% - are more willing to pay advisory fees from plan assets than in the past
12% - haven’t changed in their sensitivity to fees
8% - have pretty much the same sense of paying a flat fee for advisory services as in the past
4% - are less willing to pay a flat fee for advisory services than in the past
“We have not yet met a client or prospect who doesn't value fee transparency and knowing exactly what their advisor is paid,” noted one reader. “How else do you determine if fees are reasonable in light of the services provided.”
“The fee discussion is nothing new for our clients,” observed another. “They have always had full disclosure, and the option to pay fees as they choose.”
Reader Remarks
As usual, we got a number of reader comments. Here’s a sampling:
“Fees seem to be a common denominator for those who can’t articulate their value. The inability to deliver an iron-clad value proposition and or menu of services provided, has led to advisors to undercut each other, in my opinion.”
“I think sponsors are still split the same as in the past over those that want to pay the advisory fees versus those that want it to come out of the plan. I’ve definitely seen fees come down in the smaller market on an asset based level, which prompted us to move to charging a mix of hard dollar and asset based fees for that market. As we start leaning towards the end of this bull market, it’s definitely been on my mind that maybe we need to shift some of our fees to flat arrangements in order to avoid taking a pay cut during the next recession.”
“I feel advisory fees are being examined more closely but it also presents a way to differentiate yourself. I position a slightly higher fee because my expertise goes much further than investment services and expands into plan design, compliance & operations. We will actually spend time with payroll & HR to set the plan up for administrative success and less burden, which is typically where most pain points are.”
“If it comes to it, when the sponsor is beating us up on pricing, we pull out the services sheet and say, ‘Which one would you like us to cut?’ In addition, we reinforce the analogy between Walmart and some higher-end store (we change it up based on who we’re speaking with) and ask them what type of product and service do they want to pay for and receive.”
“I think there is a more direct line between the understanding of what a Fiduciary does and what they're responsible for and fees.”
“I don't believe the passing of IRC 408(b)(2) has fully accomplished its objective yet. Required fee disclosures still ONLY report fees paid by the plan, leaving a substantial fee component, which is left undisclosed for retirement plan purposes. Some advisors had even encouraged plan sponsors, shortly after 408(b)(2) was in practice, to begin paying more from the corporate checkbook. The drivers were two-fold: to take an additional corporate tax deduction for said fees, and to shift away from the plan to create the perception that fees charged are even MORE cost-effective. In my opinion, this kind of tactic flies in the face of the purpose of 408(b)(2) of requiring all plan providers to disclose plan paid fees in the first place fully. In my opinion, the code section should be amended to require that ALL plan expenses, plan AND employer paid, regardless of the payment source, be completely disclosed. THEN we'd know the full cost, and the regulation would achieve its purpose; full disclosure and complete transparency.”
“As Ted Benna pointed out recently, if your main service is fund selection, monitoring and reporting, then you are probably overpaid; there are so many services that can be provided, and are much more appreciated that the fund selection process.”
Thanks to everyone who participated in our weekly NAPA Net Reader Poll!
