September 10, 2012
--- Pricing raises myriad issues, including type of compensation model, what services are factored in, and if similarly sized plans might call for different fees. ---
At the PLANADVISER National Conference in Orlando, a panel discussed how to price fees for service.
The majority of panel attendees surveyed about how they are most commonly paid for qualified plan business (59%) said they base fees on asset size. Nearly one-quarter (23%) said they are commission-based, and 14% use a hard dollar or flat fee, regardless of asset size. Just 4% are ERISA budget or ERISA reimbursable, and 1% said fees are per participant.
“Charge as much as you can,” advised Edward O’Connor, managing director, Morgan Stanley Smith Barney. After making a clearly humorous statement, he explained more fully that advisers should earn as much as they can and then begin to break it down into comprehensible and explainable steps.
According to O’Connor, benchmarking is a crucial first step, and there are lots of sources. “But be careful,” he cautioned, “because it can be a race to the bottom.”
Melissa Cowan, executive director, UBS defined contribution advisory program, UBS Financial Services Inc., mentioned that some advisers may hesitate to use benchmarking services for fear of locking themselves into a range. O’Connor advises against walking into a first meeting with the range of fees from benchmarking. “It’s human nature to want the smaller number,” he pointed out. Value has to be established and fees discussed, but there’s a natural build-up to such discussions.
“We try to make benchmarking about the services we are delivering and how we are delivering, not the fees themselves,” said Rick Shoff, managing director, advisor support group at CAPTRUST Financial Advisors. “That’s a slippery slope. If you’re getting paid more it’s because you are delivering more.”