Compliance September 27, 2007

PANC: Revenue Sharing: Getting Your Fair Share

Scrutiny of fees has never been more intense. A panel of advisers discussed how they are responding to the environment while protecting their bottom line.

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Advisers need to “share’ revenue sharing information with clients was the consensus of panel members at PLANADVISER’s National Conference. According to panel member Mark Wetzel, President of Fiduciary Investment Advisors, LLC, fee disclosure can help an adviser find ways to add value to a plan, and sharing that with a client or prospect is a good marketing tool.

Wetzel said advisers need to tell clients where their money is going and what options they have to cut costs. A sponsor who balks at its fees and the revenue sharing between brokers or vendors and funds can change vendors or invest in lower share classes. It is good to compare the fee breakdown each year and reconsider the options, according to Wetzel.

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Panel member Jason Chepenik, Managing Director of Chepenik Financial, suggests getting revenue sharing costs from vendors broken down on a per participant basis, then comparing that to the cost of operating the plan. Chepenick shares this information with his clients in an “Economics of a 401(k) Plan’ presentation and says that sharing this comparison with plan sponsor clients helps them understand the impact of revenue sharing.

Advisers must be sure to include information on revenue they are getting from funds themselves in fee disclosures to participants, panel member Andrew H. Prevost, President, Retirement Plan Division of Meltzer, pointed out. He added that advisers will then need to justify what they are doing to earn that revenue. Recently, a discussion about 401(k) fees is everywhere, he said; many newspapers have even begun writing articles, which might make plan sponsors increasingly concerned. As a result, honest discussion is vital, he said.

Prevost issued a warning for advisers getting into the participant advice arena in order to not be accused of steering participants to funds from which the advisers earn revenue. He suggested advisers’ advice fee be based on participants’ assets.

Looking into the future, Prevost suggested that there might be a time when there is equal revenue paid across all funds in a plan, instead of varying from fund to fund.

In Practice September 27, 2007

PA NC: The Future of the Independent Adviser

According to representatives from LPL, National Retirement Partners, and Raymond James, retirement plan advisers working in the independent channel will have many opportunities to broaden their businesses in the future.
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As plan sponsors look to their advisers to serve as co-fiduciaries on the plan, the fact that independent advisers can be allowed to sign on as co-fiduciaries is a competitive advantage over wirehouse advisers. Bo Bohanan, Director of Retirement Plan Consulting of Raymond James & Associates said his firm allows advisers to serve in such a role on a case by case basis. Dick Darian, Chief Marketing Officer of National Retirement Partners (NRP), said that NRP believes that all its advisers are fiduciaries and allows them to say as much.

The Pension Protection Act (PPA), especially the fiduciary adviser safe harbor, allows for many opportunities for advisers. Both Darian from NRP and John MacGregor, Senior Vice President, Retirement Services at LPL Financial, said they are making the DALBAR Fiduciary Adviser Network program available to advisers. Although he thinks is probably not going to be embraced by the masses of participants, it will allow advisers to work more with the high net worth folks, MacGregor said.

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The rollover market will be significant, all three representatives agreed. Why should the providers be retaining those assets, Darian asked; why wouldn’t it be the adviser? Bohanan said that rollovers will require the advisers to get access to some type of comprehensive planning, including marketing support materials and intellectual capital.

Wirehouse Competition

There are more plans out there than there are good advisers to help them, Darian commented. “So,” he said, “we are glad wirehouses are increasing their services.” However, he said, he is aware of the limitations the wirehouses have.

A traditional limitation is that wirehouse advisers cannot serve in a fee-based advisory role. However, moderator Steve Wilt, financial adviser with The STAR Group with Merrill Lynch pointed out this dynamic is changing. However, despite that ability, MacGregor said he did not see that as a threat, pointing out that LPL has rolled out two fee-based platforms, one for institutional advisers and one for the masses. Saying instead that wirehouses will still have constraints, even as they roll out flexibility, MacGregor commented that he believes the independent channel will remain the place to be for serious 401(k) advisers, saying surveys support that people want an independent adviser.

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