How Retirement Plan Advisers Justify Their Fees

One adviser charges a flat fee up to certain asset levels, and then additional basis points as plans grow, while another emphasizes the detailed, time-intensive fiduciary work he does for clients when asking for a fee increase.

Despite fee compression, some retirement plan advisers have begun pushing back, pointing out to clients all of the value they bring to retirement plans and, in some cases, negotiating slightly higher fees for the work they do.

When Ellen Lander, principal of Renaissance Benefits Advisors Group, founded her practice, she charged a flat fee for all of her clients. “Five years later, I realized that was a terrible mistake,” she says. “While we are close with all of our clients and encourage dialog, I struggle with speaking with them about what fees are appropriate and reasonable. For example, I have one client who has been with our firm for 11 years. Their assets have tripled and now encompass three plans. I have handled three RFPs [requests for proposals] for them, and I have never increased my fee.

“Many of my other clients have expanded their businesses through mergers and acquisitions, whereby a plan that was $30 million in assets becomes a $100 million plan with all of the work that involves, and I have not increased my fees,” Lander continues.

Ideally, Lander says, advisers should charge an hourly fee like attorneys and accountants, but clients are highly resistant to that. She recommends that advisers charge a flat fee up to $50 million in assets and then add a two to three basis point “cost of risk factor” on assets up to the next level of $100 million, and continue in that fashion as assets grow. “Other advisers say, just renegotiate your fees every three years. I am uncomfortable with that,” Lander says. “Rather, this feels like a fair way that takes into consideration the growth of the plan.”

Lander says advisers should also have the mettle to tell clients who ask for additional work that it is “out of scope,” and charge a hourly fee for that work. “I have had to learn painfully to speak up quickly and boldly when something is out of scope,” she says. “The cautionary tale is to stay on top of it and realize up front that you cannot envision how a plan will grow. We know that as plans grow, there is additional liability.”

Don Duncan, managing director of Savant Capital Management, says that when negotiating a fee increase with his clients, he emphasizes to them all of the 3(21) and 3(38) fiduciary work he does for them. He says he is also willing to take on more work for clients by offering more education and, potentially, financial planning for employees and corporate executives.

The main thing for advisers to consider, Lander and Duncan say, is that it is warranted for advisers to justify the value they bring to clients and, when necessary, have a discussion with them about what fees are reasonable.