DISRUPTION: Driving Down Plan Costs a Clear Focus for FixedFee401k

Our series of exclusive articles featuring retirement industry “disruptors” continues with another growing provider in the small- and mid-market, promising 50% lower costs than the traditional competition through the exclusive use of fixed fees.

Marc Wilborn is founder of Wilborn Advisors, a firm that just about a year ago launched a turnkey 401(k) plan program called FixedFee401k.

As the program’s name implies, the firm hopes to “stop the pervasive problem of escalating fees” by establishing fixed fees for advisory services and a flat fee per participant for recordkeeping services—setting all of this in stone from the very outset of the client relationship.

Sitting down for a broad strategy discussion with PLANADVISER, Wilborn said his firm wants to pretty much completely change the basic pricing of 401(k) plans in the small- and mid-market and “fully promote use of low cost funds and affordable participant support.”

“I’m an actuary by trade, and I got my start in this business with a national consulting firm, working on defined contribution plans,” Wilborn explained. “I got out of that line of work and entered the retail investing space, not working with large employers, in other words. I could immediately see very clearly that the small- to medium-sized 401(k) business is really a business that is poorly understood by the consumers of it—by the employers and the employees who are ultimately paying for and using the services in the marketplace. As a result fees are far higher than they have to be.”

The needs and pathways for disruption in the small- and mid-market defined contribution plan space, Wilborn argued, are very clear and pressing.

“Just given the blatant shortcomings of the marketplace, we felt very confident about starting this new approach from scratch and looking hard at the inefficiencies in the marketplace that we could actually do something about,” he said. “Our first target was asset-based fees. This is still a very common method for setting recordkeeping fees and administration fees in the small- and mid-market, and even advisory fees as well. It doesn’t take a background as an actuary to understand why providers have liked to charge asset based fees—or why they are not a great deal for employers and participants as plans and accounts naturally grow over time.”

To avoid asset-based fees, FixedFee401k works exclusively with recordkeeping partners willing to price their services based on headcount, “which is crucial from our perspective for creating pricing certainty,” Wilborn emphasized. “Our approach features no revenue sharing or hidden fees. It’s truly a fixed-fee 401(k) plan.”

Related to the approach taken by some of its established and emerging competitors, the FixedFee401k solution involves full delegation of investment fiduciary responsibilities, and the firm formally takes on Employee Retirement Income Security Act (ERISA) 3(38) fiduciary status. Unlike some other self-styled disruptors, however, Wilborn’s firm again is not technically acting as the plan provider.

“We work primarily with Vanguard Retirement who is responsible for the plan’s ongoing administration. They are not our partner, technically, but because of their transparent pricing methodology, we can work with them closely to ensure that the fees are held constant moving forward,” Wilborn clarified. “FixedFee401k also provides any necessary support to assist in plan administration questions or issues as they arise. We can also work with your recordkeeper or TPA if that’s best for your business.”

Wilborn emphasized the importance of Vanguard’s willingness to be clear and transparent ahead of time in terms of what it is going to charge for a given plan population.

“If I go to another recordkeeper with a new plan sponsor, particularly one who charges an asset-based fee, they will want to know all about the plan metrics and what the anticipated flows from that plan client might be in the future, and then they take this information into the back room and debate what they can charge and still win the business,” Wilborn said. “That approach, we believe, would put us on the wrong side of this business from our clients. We’re not here to maximize fees we can charge, to put it bluntly.”

The other benefit of working with Vanguard: In its role as a 3(38) fiduciary investment adviser, FixedFee401k and its clients can work in an open-architecture environment when crafting investment menus and recommendations.

“So, when we do our fiduciary screening for a given fund lineup, we are not steering anyone in one direction or another from a fund family perspective, and we don’t allow there to be any kind of revenue sharing within the plan,” he said. “So it is not just Vanguard product that we are recommending on a fiduciary basis, nor is it only index-based products, which is different from some other providers trying to act in the bolt-on 3(38) space. You may see other firms out there who are simply interested in ease of use and they do not utilize the open-architecture approach. We don’t think this would be a great approach for us to take, either.”

Wilborn went on to stress one other important difference between his firm and “some of the Internet-based providers that are emerging in this space alongside us.”

“One of the things you have to buy into with the Internet-based model is the blanket customer service approach they are bringing to the table,” he noted. “With our approach, every plan gets their own adviser and every plan gets unique support based on their needs. We feel that is very important for plan outcomes.”