PLANADVISER - Fall 2023 - 22

Feature
Justifying Advisory Fees
None of the advisers interviewed
for this story reported
unusual pressure from sponsor
clients to reduce their advisory
fees. However, they did cite an
increased need to demonstrate
how they add value to the plan.
" It's all about the justification of
fees " of vendors in plan management,
Davis says. Still, she adds,
Escalent sees " usage of advisers
remaining quite strong, if not
growing or expanding, in this
current environment. "
Advisers point to multiple
services to justify fees. Loraine
Montanye,
senior
retirement
plan adviser with advisory
firm DBR & Co. in Pittsburgh,
says her firm's most significant
value-add is its skill at reducing
or taking on liability that sponsors
would otherwise retain.
" There's a huge liability
REDUCING COSTS
FOR 403(b) PLANS
A MARCH 2022 study from the U.S. Government
Accountability Office reported that
the country's 403(b) plans held more than
$1.1 trillion in 2020. Fees paid by Employee
Retirement Income Security Act plans and
non-ERISA plans varied widely. According
to the study, surveyed plans reported
recordkeeping and administrative service
fees ranging from 0.0008% to 2.01% of
plan assets. Plans' investment option fees
ranged from 0.01% to 2.37%.
The wide range of such fees could be
creating an opening for low-cost
plan
associated with sponsoring a
retirement plan, based on the
quality and expertise of service
providers [the sponsor] hires, "
Montanye says. DBR & Co. serves
as both a 3(38) and a 3(21) fiduciary.
While, " as a 3(38), we're
liable for the plan's investment
selections, in our 3(21) co-fiduciary
service, we share liability
with the sponsor through our
responsibility to provide high-quality advice, " she says.
Adam Dani, a retirement plan specialist with Napier
providers, particularly among plans paying
higher percentages. For example, automated-401(k)
and -403(b) provider Human
Interest charges both plan types the same
monthly and per-participant amounts,
based on the plan's desired service level.
Rakesh Mahajan of the firm says, while
401(k) and 403(b) plans differ in some
respects,
the differences do not
justify
higher fees for 403(b)s. " Testing is a little bit
different, but
the reality is they're exactly
the same. And so why charge [403(b)
plans] more? " he says. -EM
Cost-Cutting Measures
Identifying
potential
cost
savings is another way advisers
can add value and reframe
the conversation, says Rakesh
Mahajan, chief revenue officer
at automated-401(k) and -403(b)
provider Human Interest in San
Francisco. His firm supplies a
free plan benchmarking service
for customers and prospects.
As part of that service,
Human Interest has a team
dedicated to reviewing a plan's
408(b)(2) fee disclosure statements
to show sponsors what
fees they are paying. Mahajan
notes that sponsors often need
more knowledge to be able to
identify all the expenses they
pay and are often surprised by
their plan's costs.
Dall points to the difficulty
for plan sponsors to analyze
cost data internally. " An
adviser team such as ours can
get into the details, pull the
fee disclosures and compare
share classes, " Dall says. " A
plan sponsor on its own might
not have access to the data, or
might not understand the data
in terms of being able to benchmark
its fees, especially in cases
where it's given formulas or
conflicting documents. "
Fee analyses can sometimes generate substantial savings.
Financial in Braintree, Massachusetts, says he spends much
of his time in two areas. The first is helping sponsors work
with the multiple service providers supporting the plan. He
says a small-business owner has little time to deal with
recordkeepers and third-party administrators. Napier Financial
provides a primary point of contact for interacting with
the vendors, saving the sponsor time and aggravation. The
second area is providing financial education to employees.
Dani says participants want education and advice. " Being the
education specialist is what stands us apart for our clients. "
Advisers to defined benefit plans also can justify fees by
adding value. According to Martha Tejera, search consultant
with Tejera & Associates LLC, in Tucson, Arizona,
performing strategic asset-allocation studies is the most
significant benefit an adviser can offer. The studies can
include assessing the client's return-seeking strategies,
reviewing liability-hedging strategies
such as
driven investing, developing the plan's glide path and
performing pension risk transfers.
Dall mentions PNC's review of a new client's $16 million plan
in a revenue-sharing platform where the plan paid fees to
an adviser and the recordkeeper. After reviewing the plan's
investments, organization, and workforce demographics,
Dall's team recommended a shift to an open architecture
platform with the same recordkeeper. The recordkeeper
subsequently lowered its fees because of the change from
revenue-sharing to zero-revenue funds. The result: nearly a
$100,000 reduction in the plan's annual costs while retaining
" relatively the same investments with the same types, same
mix of active and passive, " Dall says.
401(k) plans' investment-related average fees have been
dropping in recent years, according to the " 401k Averages
Book " annual survey.
But Beth Halberstadt, senior partner in Aon's wealth
liabilitysolutions
practice, in Boston, explains that Aon utilizes
its large DC-plan clients' buying power to negotiate lower
rates with investment managers. Pooling Aon's outsourced
chief investment officers' assets can also help it lower fees
because OCIOs reduce an investment manager's distribu22
planadviser.com | Fall 2023 | Practice Management
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PLANADVISER - Fall 2023

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