Switching to the Hard Dollar Model
Switching over from a basis point model to the hard dollar role was another topic. O’Connor observed that a plan sponsor may approach the adviser. “For the mega-size plans it is hard dollar, well over 100 million, 200 million,” he said. It may be an ego boost, but advisers should understand the time and challenges involved.
A hard dollar cap can be put into a contract, Cowan noted. “I encourage people to sit down and think about how much time they’re going to spend on a plan. Maybe you can’t do education because it won’t be profitable enough,” she said. It may be difficult in the midsize market, Harrington said.
Other challenges of moving to a hard dollar model may be psychological. The asset-based fee provides a comfort zone, and it’s more transparent, O’Connor said. “Twenty-five basis points just sounds a lot smaller than $25,000,” he said.
Shoff pointed out that an organization might need to examine whether it has the actual staff necessary in accounts receivable to handle the billing aspects. Calculating the additional compensation for taking on extra ERISA duties in order to be a 3(21) fiduciary is another factor.
“If you spend 100 hours on a plan, and make 300 an hour, is that enough for you?” O’Connor asked.”You do need to be clear about the blood sweat and tears you put into this.”
It can be tricky to ask for more money, even when the time and effort servicing a plan makes it necessary.
A holistic approach works best, according to Shoff, who noted that his firm increases fees by increasing service to existing clients. “Those are the best dollars for growth,” he said. That way you’ve added value and the complexity has changed, opening the door to telling a client, “Hey, our fee needs to go up.”
The acquisition process also deserves scrutiny, Cowan said. “More risk can bring more return. How many visits do you have to make to a new client?”
And, observed Harrington, bigger clients can sometimes be more demanding. “If you are comfortable with your value proposition it’s not difficult.”
According to O’Connor there is a lot of opportunity in plan design. If you provide distinct services, advisers can use more data and more tools to benchmark.
Cowan advised that advisers mentally walk through what they do every day that is of value to clients.
When it comes time to maximize your value, O’Connor counseled, “Convey what you are bringing to the table.” Most advisers provide more than simple advisory services. “You’re actually a consultant,” he said. “You’re an outsourced government relations department because you’ll hear government information at a conference and bring it back to your client.”