Uncertain Course

I am fortunate to be in the position where I see my fair share of opportunities—either as a financial adviser or as a coach to financial advisers. When engaged in discovery or fact-finding while in the midst of these opportunities, the conversation invariably will turn to compensation. Although I find it reassuring that the plan sponsors of today no longer blindly accept the old industry drivel that “everything is free,” there is, however, a trend emerging within our industry that disturbs me as it relates to pricing.

It appears, in the wake of smoke-and-mirror pricing, rush-to-judgment pricing has taken its place. On a case-by-case basis, when I learn of “what pricing has won the business” or “what price an adviser needs to be at to be considered,” I become concerned for the future of our industry. 

Case Study
Within the last year, I and another firm were asked to bid on a one-time project that included the following plans: 

1. $250mm DB plan, needing a benchmarking study and vendor search; 
2. $300mm participant-directed DC plan for which they wanted a benchmarking study—and replacement of a portion of the 25 funds;  
3. $15mm multi-employer contributory plan that needed an investment and performance review of five investment managers. 

In the normal course of business, I requested all plan-related documents and the minutes of the retirement plan meetings for all three plans. Subsequent to reading that first wave of delivered documents, for two plans, I requested additional documents referenced throughout the meeting minutes. The documents supplied, and more notably the absence of some, resulted in my requesting a third round of documentation. 

I became comfortable with the anticipated workload, the culture of the organization, and with whom I would be interacting on this project. To put it in technical terms, “I knew where at least some of the bodies were buried.” I was now in a position to bid.  

After lengthy conversations with members of the committee, I was asked if I would revise my pricing to be closer to my competitor. I informed them that I spend a large amount of time comprehending the scope of a project—enabling me to deliver my best pricing in my proposal. They again made the statement that they would prefer to use my services but that the other firm had more favorable pricing. I held firm on my pricing, as I knew what I needed to deliver a quality product. They asked one more time, but in a different way. They asked if I was interested in knowing my competition’s bid. My response was that I had an interest in knowing the competition’s pricing, but only after the business had been awarded, not during the decision process.  

My competition, which submitted the winning bid, did so by pricing its services at a third of the low range of my bid, and at a fifth of the high end. Later, I was informed by a member of the committee that the winning firm did not conduct anywhere near the analysis work that I had done prior to bidding this project. The committee member then said to me, “Perhaps they (the winning firm) could come in with a price as low as they did because they did not need to review the committee minutes or those other documents that you asked us to supply.”  

My experience as a coach has opened my eyes to the fact that sometimes financial advisers are bidding retirement plan business that might not permit them to cover the incremental costs associated with a new account. 

Sometimes, there is more risk in winning the business than in not! Understand that “lower prices” can be a fatal hazard of this business. 

Steff C. Chalk is Founder and President of CHALK 401(k) Advisory Board, with a client list that includes corporations, nonprofits, and governmental units. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of “How to Build a Successful 401(k) and Retirement Plan Advisory Business.”