Specifying tasks and keeping track of how much time each accounts for is another pitfall, according to O’Connor. “You don’t want to start punching a time clock,” he said. “Be clear and distinct, but don’t get too granular in a fee quote.”
While most attendees (72%) had not changed fee formulas in the last 12 months, 29% said they expected some change in the next 12 months. Two-thirds (66%) said they did not expect to change their pricing for qualified plan business. Panel attendees surveyed said they knew how much they need to charge on a particular plan size in order to be profitable (39%), while 44% said they did not know.
Nearly three-quarters of survey respondents (74%) felt fees are going to face some compression. Most respondents (59%) pointed to new regulations, and 15% said they thought smaller firms willing to aggressively price new business could be a cause. Another 15% said they felt larger firms might be willing to aggressively price retirement advisory services as an entry to other business opportunities, which could have an effect. Very few (3%) thought the recession was a factor.
What’s the Minimum?
The question of minimum fees was discussed, and whether a fee should be lowered in order to stay competitive. Attendees were nearly evenly split on the question of minimum fees, with 55% saying they do have one, and 45% saying they do not.
A minimum or a range is a good idea, according to Bruce D. Harrington, vice president of sales and business development, John Hancock Financial Network. “Advisers don’t like to walk away from business, but it can be a race to the bottom,” he said. Cowan added that it can help to scout the possibility in advance. That way, she said, “you can walk away if someone doesn’t meet your number.” UBS’ business is about half retail and half institutional, according to Cowan, who added, “I definitely think we put a minimum fee a few years ago so we didn’t have these really small contracts coming through.”
“Often when you feel you’re not getting what you’re worth from a client they’re taking a lot of extra time,” Shoff said. “The right minimum fee could be $25,000 or it could be $10,000.”
“Life is gray, not black or white,” O’Connor agreed. "You might go below that in an industry you want to break into, but you need to know when you’re not making money.”