Reaching Higher

The revenue model you use to fund your retirement plan advisory practice; how and when to disclose your fees to plan sponsor clients; whether to go independent or stay affiliated with a national full-service wirehouse; not to mention fiduciary responsibilities … These are just some of the many critical concerns you, as employer-sponsored retirement plan specialists, grapple with every day.

The 2012 PLANADVISER Adviser Experience Survey gives you a detailed and transparent window into how your practices and strategies stack up against those of your peers—equipping you with the insights you need to examine your own policies, make improvements and stay ahead of your competitors. And this year, for the first time, we analyze changes from the year before.

Respondents to this year’s survey average considerably greater total assets under advisement—$8.28 billion, up from $630.2 million in 2011—perhaps reflecting an increase in those responding on behalf of their team. On par with last year, however, the largest percentage of respondents (24.2%) have more than 75 qualified plan clients; last year it was 24.9%.

Specifically, partnerships figure in a big way for advisers, with 49.3% running a team practice in one office location and 29.8% running a team practice in multiple office locations. Combined, that’s 79.1% having a team practice. Only one in five (20.7%) have an individual adviser practice.

Adviser firm affiliation continues on the “breakaway broker” path, with only 15.1% of advisers at national full-service wirehouses, down from 17.1% last year and around one-quarter of respondents in prior years. Twenty-six percent of advisers preferred independent broker/dealers (B/Ds), while another 19.7% are now their own registered investment adviser (RIA).

Of those advisers to have a broker/dealer affiliation, the most common primary benefit they receive is compliance oversight (62.6%, down from 71.4% in 2011). This is followed by investment due diligence (28.9%, down from 44.4%); brand name recognition (28.6%, down from 38.3%); marketing support (22.3%, down from 28.2%); and co-­fiduciary support (20.4%, down from 30.5%).

Salary and Compensation

As for their compensation model, in a year full of disclosures to plan sponsors and participants, fee-based models continue to be the most prevalent source of revenue for advisers. However, with 73.3% of retirement plan advisers saying they are paid in part with fees based on assets, this is a slight decline from 77.6% in 2011; 51.1% charge a hard-dollar, or flat, fee, regardless of asset size (up from 47.1%). Slightly more than half (55.8%) continue to receive commissions and/or 12b-1 fees (down from 62.4%).

The biggest per-centage of advisers’ revenue—of those who report any revenue in each category—goes to advisers’ salaries (34.7% in 2012, down from 51.7% in 2011), followed by their broker/dealer (20.6%, down from 52.9% in 2011); general expenses (14.4%, down from 18.9%); their partners’ salaries (8.6%, down from 24.6%); and travel expenses (3.9%, down from 13.9%).

Advisers disclose these fees to plan sponsor clients in a multitude of ways, the most common being a fee-disclosure statement (75.9%, up from 60.1% in 2011), followed by annual reviews (70.2%, down slightly from 71.6% in 2011); contracts (64.6%, compared with 66.7% in 2011); Form ADV, filed with the Securities and Exchange Commission (SEC) (40.0%, up from 33.7%); and the initial request for proposal (RFP) (24.9%, down from 49.4%).

The most prevalent fees charged by advisers are as follows: 35.8% of advisers charge 26 to 50 basis points (BPS) (or $2,600 to $5,000) for plans with $1 million in assets; 43.8% charge 26 to 50 BPS (or $13,000 to $25,000) for plans with $5 million in assets; 67.8% charge 11 to 25 BPS (or $22,000 to $50,000) for plans with $20 million in assets; 45.9% charge 11 to 25 BPS for plans with $50 million in assets; and 41.6% charge six to 10 BPS for plans with $100 million in assets.

Advisers with an annual fee or retainer include a multitude of services in the contract, although each of these services has ticked down across the board. The most common service is attending investment and retirement plan committee meetings (92.6% in 2012, down from 97.5% in 2011). Advisers also provide ongoing investment monitoring­ (89.6%) and help design the plan’s investment policy statement (88.5%).

The vast majority serve as a fiduciary to their clients’ plans; only 27.6% say they are not a fiduciary, with 57.4% saying they are a 3(21) fiduciary and 19.7% a 3(28) fiduciary. When it comes to participants, the majority of advisers (66.0%) do not serve as a fiduciary to plan participants, but just over a third (34.0%) do. This is on par with 2011, when 65.8% said they were not a fiduciary to plan participants but 34.2% were.

As for client service, advisers most commonly meet with plan sponsors every quarter to discuss investments (55.6%) and annually to discuss plan design and compliance issues (55.6%), as well as recordkeeper/third-party administrator (TPA) matters (48.8%).

When dealing with plan participants, advisers typically hold in-person group meetings either semi­annually (30.6%) or annually (28.8%). For in-person individual meetings, 43.7% offer this service as needed, followed by 21.3% offering this customized service once a year. Outside of these on-site meetings, advisers’ preferred methods of communication are quarterly or monthly emails (18.2% and 14.8%, respectively) and quarterly webcasts (9.6%).

Growing Up

When it comes to governing their practices, most advisers (58.4%) have a written business plan, down from 63.9% who had one in 2011; 41.6% said they have no such plan, up from 36.1% in 2011. More than half (52.8%) serve as the plan’s broker of record, 27.9% do not, and nearly one-fifth (19.4%) are broker of record for some plans. An overwhelming majority (78.5%) are personally involved in evaluating and recommending fund choices in an advisory capacity with qualified plan clients.

Asked about the potential growth of their practice over the next 12 months, 50.2% expect it will stay the same, up only slightly from 48.3% who shared this outlook in 2011. Strategies to grow their business over the next 12 months center on 401(k) plans (41.7%), fiduciary services (12.9%) and plan/fee benchmarking (11.6%).

As a means to grow their business, referrals are the name of the game for advisers—59.7% find most of their new clients through referrals or strategic relationships with other professionals, up slightly from 57.1% in 2011, and 23.2% find them through referrals from existing clients, on par with 23.7% in 2011.