2007 Recordkeeping Survey - Provider Choice

Insights from PLANSPONSOR's 2007 Recordkeeping Survey

By Alison Cooke Mintzer See Archive >
2007 Recordkeeping Survey - Provider Choice

Advisers generally have their favorite recordkeeping providers, choosing to work with a select handful of them—and, despite continued waves of consolidation, there remain plenty of good ones from which to choose.Consolidation isn’t a trend restricted to weak providers in the space, of course, and the rationale for stepping back from the frequently arduous task of participant recordkeeping can be as individual and varied as the industry itself. Between keeping up with what providers—whether major recordkeeping firms or third-party administrators (TPAs)—are still playing in which market(s), and who is offering what services, keeping it all straight can be a full-time job.

Pay Structures

PLANSPONSOR’s annual Recordkeeping Survey illustrates the variety of adviser business models working in the retirement plan market today. Just 8% of recordkeepers work solely with their own advisers, while others (43%) work solely with independent advisers (defined in the survey as those outside the recordkeeping firm). Significantly, the largest group—about half (49%) of the 114 recordkeepers in this year’s survey—work with both groups.

This diversity is seen also in the various types of fee schedules recordkeepers say they make available to advisers outside their firm. Most recordkeepers surveyed (78 of the 114) offer a variety of fee structures to third parties. Ongoing trail compensation was the most commonly cited (68 of the recordkeepers), followed by fee for service, or registered investment adviser (RIA) fees (offered by 63 recordkeepers), and, lastly, upfront commissions, available at 56 of the surveyed recordkeeping firms. Forty-eight providers responded that they offer all three types of adviser compensation to third parties.

It appears that being able to accommodate various fee schedules allows recordkeepers access to the most advisers; as some recordkeepers also mentioned, advisers can gain additional access to fees through revenue-sharing arrangements, percentage of referrals, or services fees, in addition to those types of fees mentioned above, or, alternatively, negotiate for payment directly by the plan sponsor. Further, many advisers may vary their compensation depending on their clients’ individual wishes, meaning the ability to negotiate various schedules with a single recordkeeper is most likely of interest.

However, a few recordkeepers specifically mentioned they offer advisers the opportunity to select level, or equalized, commissions: a fee structure that may become more attractive to advisers looking to offer investment advice to participants as a fiduciary adviser under the Pension Protection Act. In those situations, the adviser’s fee must not vary based on the investments recommended (a result supported by the level comp approach), or that advice must be predicated on a computer model certified by an eligible investment expert who has no material relationship with the adviser (See "Good Advice," Spring 2007).