PANC 2009: Justifying Adviser Compensation to Clients

New requirements for disclosing retirement plan fees will put pressure on plan sponsors, plan advisers, and plan providers to justify the value of services received or offered, according to Aaron Hodge, Senior Vice President at Fidelity.

Speaking to attendees at the PLANADVISER National Conference in Orlando, Florida, Hodge contended that the rationalization of the value of services and new disclosure regulations will drive the adviser pricing model.

Matthew P. Mintzer, head of US Advisory Sales, AllianceBernstein Defined Contribution Investments, said the new fee scrutiny is increasingly leading advisers down the path to fee-for service versus commissions, which is generally better understood by plan sponsors. However, Hodge disagreed, saying quantifiable services may command a flat fee, but services that require a variable amount of time can be priced using basis points.

Mintzer said there will not be as great a change for wirehouse advisers since prices are driven by the home office, but home offices will have to have conversations with advisers to align their methods for disclosing fees. Hodge contended independent advisers may have an easier time justifying fees as they have no alternative interest other than providing help to clients.

To justify fees to plan sponsor clients, Mintzer suggested advisers rely on recordkeepers to provide plan metrics, such as increased participation or increased contribution rates, to show the value of the services of advisers.

Both panelists indicated they believe adviser training and certifications will help prove value, but that more standardization of credentials may follow disclosure regulations.

As for changing adviser business models, Hodge said he anticipates the adviser market moving to more specialized services. Mintzer said there is a real chance some services will be more difficult for the adviser to provide, as the time and resources it takes to provide certain services may command a higher fee than can be justified to the client. He contended that advisory firms will begin to look at their services and lines of business and ask, “Is this a core business for us?”

PANC 2009: Provider Services Increase an Adviser’s Value Proposition

For advisers hoping to build out their businesses, recordkeepers and investment providers can provide a host of services and programs to help, according to a panel of retirement plan advisers and providers at the PLANADVISER National Conference.

Recordkeepers, such as ING, can offer advisers data they need, said Stephen Davis, national vice president Mid Market Sales at ING, For example, he said, participant data can help advisers determine how they can add value to their retirement plan relationships. Having the recordkeepers noted that so they will not have to add staff.

Elizabeth Wilson, managing director-national sales manager at RidgeWorth Investments, said RidgeWorth is a defined contribution investment-only (DCIO), and those types of providers can provide advisers with information on productivity and expanding their client base. As an example, she said, RidgeWorth recently offered seminars for advisers on how to use LinkedIn for networking.

Chris Augelli, vice president, Alliance Programs and Business Development, ADP Retirement Services, pointed out that there is such diversity in what providers offer that it is good marketing of their different specialties to partner with good advisers. He said ADP offers opportunity to advisers because of the number of clients it has to refer to advisers.

As for what advisers want, Kendall B. Storch, SVP, Retirement, Longfellow Benefits, said advisers want to be as efficient as possible, providing the best service without spending too much time. Data is a huge need, he said. It is useful for building educational campaigns, benchmarking clients' plans, and letting clients know new ideas/trends to try. Practice management training, often from DCIO firms, is also helpful, he said.

In addition, according to Storch, advisers use providers as an eye into the competition, to know who is doing what and what has been successful, and also to gather examples from others who have tried something an adviser may want to try.

All panelists agreed there are no demands or set expectations of advisers from providers, but Wilson noted that "vendors take care of advisers that take care of them."

Both providers and advisers should stay unbiased in their referrals to clients. Storch pointed out that the way to stay unbiased is to keep the needs of sponsor clients and participants top of mind.

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