Ron Cohen, head of defined contribution investment only (DCIO) sales for Wells Fargo, recently sat down to talk shop with the PLANADVISER editorial staff.
The conversation initially focused on the surprisingly wide gap identified by new a Wells Fargo survey between what defined contribution (DC) plan sponsors say they expect from their advisers versus what advisers generally prioritize. In short, the research found that many DC plan advisers misunderstand their clients’ top concerns and expectations, potentially leading to friction when it comes time to assess fees and renew the relationship.
But Cohen also pointed to an elite subset of advisory firms that are not only finding ways to better serve their DC plan clients’ particular demands—they’re also getting paid well to do it.
“At first it was the recordkeepers that were being squeezed on fees and told that their services have been commoditized,” Cohen observed. “More recently we have seen this challenge move more into the adviser’s domain. But just in the last couple months and years we have seen another trend emerge—of advisers standing up and saying, No More. This is my fee and we deliver tremendous value for that fee.”
In fact, Cohen noted that “more than a few” firms with a wide footprint in the DC advisory space are actually increasing their fees, in some cases quite substantially. What’s more, clients are willing to pay the higher fees in many cases because they have come to understand exactly what they are paying for and why. A big part of this success, and it sounds simple, is that the advisory firms are finally finding ways to clearly demonstrate in regular reporting everything they do for their plan clients, including all the behind-the-scenes man hours, analyses and general service activities the plan sponsor might not actually be aware of.
“Why is this working? Because these firms are serving the real needs of their clients, and even more importantly they are proving and demonstrating their value,” Cohen said. “These firms have simply said no more to falling fees. They are no longer trying to just underbid to win and protect business. They know what they do is right by their client and that the deliverable fully justifies the fee.”
Cohen suggested plan sponsors will generally respond positively to advisers who are proud of their service offering and willing to frame it as a premium-level service. Of course, not all sponsors will want to hire a premium-priced adviser, so this type of thinking may indeed limit the gross number of plans that an advisory firm works with.
“I was chatting recently with a $240 million plan sponsor who told me that they were doing a search for a new adviser to the DC plan, and they had responses come it all over the board in terms of fees. The range was from $87,000 to $200,000. That’s the kind of spread that has developed in the marketplace. Some advisers are standing up and saying, ‘We are worth this fee because we truly do more,’ while others are still undercutting.”
Different models will be appropriate for different plans, but Cohen suggested that it is difficult to see how an adviser might turn a sustainable profit delivering any kind of quality service to such a sizable plan at such a low fee.
“The range is so diverse now, but the real retirement plan advisers who have real quality process in place, they have clearly had enough of being squeezed,” Cohen concluded. “Anecdotally, we are definitely seeing more flat-fee-for-service business as this unfolds—moving the understanding of the advisory fee away from the investments.”