It seems that the race to the bottom for 401(k) and 403(b) advisory fees will
not slow down anytime soon. But some plan advisers
have found a way not only to halt the trend, but actually increase fees.
The first step advisers can take to maintain or even increase fees is to move away from acting purely as a so-called "
Triple F" adviser — one focused on fees, funds and fiduciary services — while charging an asset-based fee. This approach leaves advisers vulnerable to less experienced practitioners willing to perform these services for less money — or, even worse, low-cost robo-advisers.
Savvy advisers like Jania Stout of Fiduciary Plan Advisors are positioning themselves as strategic consultants.
"We act as an extension of our clients' team, being paid to be a thought leader coordinating all of their vendors," Ms. Stout said. "Triple F functions are viewed as tactical," she warned.
In the institutional defined-contribution-plan market, the "outsourced chief investment officer" is one of the hottest trends. In the retail DC market, plan sponsors need more than just investment services, and are more likely to respond to "outsourced chief retirement officer" services instead.
"We've been acting as an OCRO for years, overseeing the plan's record keeper to make sure they are performing their duties properly," said Barbara Delaney of StoneStreet Advisor Group. "We know the history in case of a problem or a Department of Labor audit."
DC plan sponsors are used to paying their benefits broker a flat fee for services rendered, so why not their retirement adviser?
"Plan sponsors are not pushing back when I charge for projects like evaluating the need for a nonqualified plan," Ms. Stout said. "They actually expect it."
Jamie Greenleaf of Cafaro Greenleaf focuses on value added for clients in the form of more employees being better prepared to retire. "In the absence of value, the focus is on fees," Ms. Greenleaf said.
"Our clients rely on us for everything, from handling a DOL audit, overseeing the record keeper and payroll vendor, to communicating with the board," she added.
Ms. Delaney includes financial wellness services in her fee for existing clients, but charges extra for those services for new clients.
"In order to get buy-in for financial wellness, we need someone to write a check," she said.
Private-equity firms value record keepers in part because of their access to millions of consumers, so why not advisers who actually have more personal contact with those consumers? But the keys for advisers trying to create a "blue ocean strategy" are to act as their clients' OCRO and position their services as strategic, not tactical.
Otherwise, advisers will continue to compete on fees in the bloody "red ocean."
Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews
' Retirement Plan Adviser newsletter.
