Getting Your Fare Share

In the world of retirement plans, there is a wealth of options for advisers and plan sponsors to employ when paying for plan services. However, it can be very difficult to determine the costs in delivering a retirement plan, according to Michael Kozemchak, Managing Director, Institutional Investment Consulting, an NRP member firm. In pricing business, his firm considers “how often the client wants us there, the costs to pitch the plan, and what the client is asking the firm to do.”

Kozemchak, whose firm has clients in 38 states, said his core clientele is publicly traded companies, with a smattering of small plans. He does not offer any retail services, and offers clients flexibility in how they pay for plan services, whether they want asset-based, hard-dollar, or fixed fees. “We’ll do fees any way a client wants,” he noted.

The other pure institutional adviser on the panel was Gregg Andonian, President of BayState Fiduciary Advisors Inc., an NRP member firm, and a registered investment adviser (RIA), who charges each of his 18 clients a flat fee. He focuses on plans that have just one location, with between $8 million and $40 million in assets, and located within an hour’s drive of his office. Andonian said he does not run into the issues of customizing pricing and services for each client, because his “very-high-touch” model is based on efficiency. Every client receives the same analytics, an average of 40 man-hours annually (after year one), and a set lineup of services, he said.

Scott Everhart, President, Everhart Financial Group Inc., has 80 plans under advisement, targeting those with between $2 million and $15 million in assets. Unlike his co-panelists, Everhart has a team that supports retail wealth management business within his firm. However, serving the various business segments, and having a staff of 13 people at the firm, means he has more overhead to deal with (and price into his services), he said.

Andonian said that 60% of his clients write a check for his services, and the rest pay through some type of revenue sharing. Everhart said that his fees are paid by the plan at nearly all his clients. Writing a check to pay for plan expenses is not as common for Kozemchak’s clients; he said 80% are using offsets to do so, with the rest writing him a check.

An increasingly expensive component is the cost of travel to pitch services or for participant meetings. Everhart said he has built that in, but it has become easy to “blow through” what was budgeted. “It’s becoming tougher and tougher to build it in,” Kozemchak cautioned; in the past, he said, he has “eaten” the costs but, in the future, he plans to look at the expenses. Since Andonian stays within a fairly constrained model—and geographic territory—he does not run into that same travel expenses issue, he noted.

Although his firm has done a “boatload of benchmarking” projects, Kozemchak noted his firm would like to get away from some of the pure project work because “one and done is not repeatable.” As for charges on the RFP projects, “we’ve yet to figure it out,” he explained, noting the disparity between large consulting firms that charge $75,000 and “Bob the broker” who will “do it for free” because he wants to get the firm’s rollover business. Ultimately, Kozemchak noted, it is important to understand what costs you incur and determine pricing from there.

Asked how they handle transparency, all three said they were up front with their clients about the dollar value of their fees. Everhart and Andonian said it was included as part of the engagement letter. Everhart also noted that he goes back to clients annually to show who is getting paid what.

Although more than one adviser on the panel cited partnerships or referrals as a source of new business (Andonian said 60% of his new business comes from referrals), Kozemchak was the only panelist who said his alliances had a dollar value. His firm has a couple of alliances, he said, for which the firm pays partners 20% to 40% of the first year’s revenue and 20% thereafter. The revenue share is done through his broker/dealer, he explained, and, although the partnerships are a good deal of work, he considers them part of the totality of the relationship.

Ultimately, firms do not charge the same fees or charge them the same way, Kozemchak noted. “We try to educate clients on the types of consultants that are out there and to understand what the clients’ needs are.” He said that, when the needs are determined, it makes it much easier then to articulate the firm’s value proposition to the client—whatever the payment schedule is.

Illustration by James Yang