Enough With Falling Fees

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 that a new Wells Fargo survey identified between what defined contribution (DC) plan sponsors say they expect from their advisers versus what advisers generally prioritize as offerings. 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 not only find ways to better serve their DC plan clients’ particular demands—they get paid well to do it, too.

“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 defined contribution advisory space are actually increasing their fees—in some cases quite substantially. What is 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.