Illustration by Katherine Guillen and Eleanor Davis
Transitioning to a fee-based model can present obstacles for
small-plan advisers, notes Jim Sampson, managing principal at Cornerstone
Retirement Advisors LLC, who says he discovered issues with recordkeepers and
plan sponsors when moving his plan clients to a fee-based model from a
traditional commission-based approach. Cornerstone’s book of business is now
half fee-based and half commission-based, with all new business operating with
Cornerstone is not alone in its transition to a fee-based
model—advisers, as a whole, seem to be making the switch. In 2010, 52% of
advisers were fee-based and just 11% were commission-only, according to a March
2011 report by Cerulli Associates.
In the retirement plan industry, however, much of that
movement to fee-based service models is happening up-market, not in the
For Sampson, whose target market is plans with assets
between $2 million and $10 million, one issue when making the switch to a
fee-based model was platforms, because of their different thresholds. Some
platforms were unable to convert plans under $5 million to a fee-based
arrangement, while others had a threshold of $1 million. Luckily, he has found
a few platforms that offer the needed flexibility.
“The platforms out there are definitely getting better, but
there’s still a lot of improvement to go,” Sampson says.
Recordkeepers have many reasons for keeping small plans in a
commission-based system, he says. For some, their group annuity contracts
require that commission be paid to a broker/dealer and do not recognize
registered investment advisers (RIAs).
It can also be a systems issue. Recordkeepers must be able
to segregate the assets from the participants’ accounts, to facilitate the
payment. “Not [all recordkeepers’] systems are set up for that in the small
market, and they don’t want to invest the required capital to change their
systems,” Sampson says. “I also think it’s partly the lack of demand. There
aren’t a lot of advisers that operate in the small market that are fee-based
advisers. That marketplace is mostly commissioned brokers, so [recordkeepers]
cater to the audience.”