Measuring up

Regardless of what comes out of Washington—and nearly everyone expects something new on fee disclosure—a frequent comment heard from those in the retirement plan adviser world is how important it is to “get in front of it.” With that in mind, as part of PLANADVISER’s annual survey, we asked advisers specific questions about how fees are charged and disclosed.

Despite the ongoing obsession with plan fees and fee disclosure in the retirement plan world, it has not yet motivated a rush to leave the commission model. Most advisers surveyed still receive payments of fees based on assets (74.2%) and commissions or 12b-1 fees (68.4%), though the use of hard-dollar and flat fees has increased, and was cited by 48.3% of advisers in this year’s survey. Significantly, just 13.5% of advisers said their fee schedules have changed in the past 12 months, with the general consensus being that they were moving to increase the number of clients paying fees over commissions.

Not only are more than half of advisers still paid commissions, but also that still accounts for the largest portion of adviser revenue. Of those receiving some commission payments, a median of 60% of revenue is being generated by such fees. Of those who said they are paid based on assets, a median of 50% of their business revenue is coming from such fees.

Advisers do seem to be putting their mouths where their money is—the vast majority (83.1%) disclose commissions and 12b-1 payments, while 61.0% take the time to tell clients the services provided for those fees, and 60.0% disclose the revenue they are receiving in basis points. About half of advisers are disclosing revenue in dollars (51.8%), explicit fees (51.8%), conflicts of interest (50.3%), embedded fees (49.2%), and the per-participant cost (48.2%).

Fees most frequently are disclosed through an annual review or contract (66.2% and 63.2%, respectively). Slightly more than half (52.2%) of adviser respondents also are using a fee disclosure statement. Most share these fees during the RFP process (81.4%) and at point of sale or upon hire (62.3%). On an ongoing basis, annually is most common (48.0%) and about half as many do so quarterly (23.5%).

When asked what advisers charge to plans of various sizes, we received answers both in basis points and flat fee or dollar amounts. There were some significantly wide ranges, especially in the $1 million and $5 million basis point ranges (1-500 bps and ½-500 bps, respectively, with median fees of 50 bps and 30 bps each). Flat fees were least expensive at the $1 million plan level ($1,500-$17,000) and most expensive at the $250 million plan size ($40,000-$150,000).

Three out of five advisers (61.9%) personally offer wealth management services in addition to their corporate advisory services. Of those who do not, most refer those opportunities to another member of their team, while a quarter direct the potential client to an outside firm (roughly one-tenth do not make any referrals). As for what advisers charge for that referral service, it varies from 50-100 bps or $150-$200 per hour.

When working with retirement plans, it can be difficult to determine if the charges you are assessing the plan sponsor are fair and reasonable (and if you think it’s hard for advisers, consider how much harder it can be for your plan sponsor clients). Are your fees in line or at either end of the extreme?

METHODOLOGY

In July 2009, online survey questionnaires were sent to those 8,500 people subscribed to the PLANADVISERdash e-mail newsletter, as well as to 1,000 advisers taken from client lists supplied by DC recordkeepers. Of the 324 responses, 267 were considered valid. The questionnaire, developed by PLANADVISER editorial and research staff, consisted of more than 60 ­questions, with a significant emphasis on the scope of the adviser’s qualified plan business.