Finding Safety From Fee Pressures

Art by Lorenzo Gritti

It is not only recordkeeper fees that plan sponsors now scrutinize. According to Ryan Gardner, managing partner and head of defined contribution at Fiducient Advisors, adviser fees also get an increasingly closer look. “Our fees are constantly being benchmarked to other firms that do the same work,” he says. “Over time, it becomes harder to charge more for certain services, due to the competitive pressures in the marketplace.”

One reason for so much pressure on fees, says David Swallow, managing director of consultant relations and retention at TIAA, is the commoditization of some of advisers’ traditional duties. Two examples are portfolio construction and investment monitoring. “Those services have become pretty much the standard offer you can get from anybody that’s an investment adviser,” Swallow says.

The fee compression is leading some advisers to seek ways to differentiate themselves, via their services, while also growing revenue. For some plan advisers, that growth is organic, but others are looking to mergers and acquisitions as a means to scale up quickly and thereby stay competitive and justify their rates.

Swallow says the M&A boom in the retirement industry will likely continue this year, so its impact on fees will continue as well. “You’re seeing more of the smaller, boutique-type firms looking to potentially join with larger firms that have other lines of business or other areas [the small plans] can leverage, so they can grow their revenue with the client base they have.”

Such consolidation is, in turn, driving greater efficiencies and lowering overhead costs, putting even further pressure on fees, Swallow says.

Greg Fiore, senior vice president at OneDigital, says many advisers are broadening the scope of their work to both add value to the client and potentially bring in more revenue. Those advisers are leaning into their consultant role, taking on plan management tasks such as making sure the plan meets the filing deadline, helping with plan design strategy and conducting participant educational meetings.

“Once you build that trust at the client level and provide that kind of service,” Fiore continues, “[clients] ask you to come back and do other things such as look at student loans, health savings accounts or emergency savings. And that work can be more contract-based, paying project fees.”

Swallow says advisers have plenty of opportunities to expand their products and services. He points to legacy institutional consultants now supplying a participant advice service. “Those firms see offering wealth management to participants as a way to generate additional fees.”

Moreover, advisers can generate fees by providing guidance to clients on new regulations such as the Setting Every Community Up for Retirement Enhancement Act, which has provisions that sponsors are still considering, and possibly “SECURE 2.0,” aka the Securing a Strong Retirement Act, which some expect to pass Congress this year.

Advisers are also charging project fees for specific, one-off services, such as guiding a plan sponsor client through the request for proposals process, reviewing the client’s plan documents or helping to combine plans after a merger. Those charges are on top of the retainer fees most advisers still charge, as either a percentage of assets under management or a flat fee based on plan size.

In general, Fiore says, plan advisers are moving away from commission-based structures, as more plan sponsors express a desire to hire fiduciaries.

Ellen Lander, principal in Renaissance Benefit Advisors Group, says her firm sticks to a flat-rate fee schedule, which makes sense for all but the smallest plan sponsors, a segment not in her client base. “Adviser work is exponentially greater than it used to be,” she explains. “That means the amount of hours we need to spend just doesn’t relate to a percentage of assets.”

The glut of recent fee-related lawsuits against plans has also prompted additional discussions between plan sponsors and their advisers on the role fees play in their plans. Nearly 150 Employee Retirement Income Security Act excessive fee lawsuits were filed over the past two years, according to the Goodwin Procter law firm, and more such suits are piling up in 2022, those against PPL Corp. and Mass Brigham General among them.

“That litigation has recentered the discussion on fees and created quite a bit more urgency for sponsors to look at theirs,” Gardner says. “They need to make sure that both the level of the fee is reasonable and how it’s being applied is equitable. Participants are much more aware of the fees they’re paying than they were five or six years ago.”

It is also important for advisers to monitor such lawsuits to understand the tactics attorneys are using to file suit against plan sponsors, and then explain these trends to committees. Those lawsuits essentially offer a road map that committees can follow to protect themselves from similar cases, Gardner says.

Lander says continually evaluating fees also makes sense as a plan evolves, demographically and by asset size. She reminds clients concerned about lawsuits that reasonable “does not mean cheap,” but, rather, fees should reflect the level of service and expertise the plan sponsor receives. Beyond that, she stresses the importance of transparency regarding which, if any, fees participants are paying.


Advisers, on Fees, Services And Concerns