PLANADVISER - November/December 2022 - 32

practice management / fees
programs or retirement lifetime income solutions. Advisers
spoken to for this story say Employee-Retirement-IncomeSecurity-Act-approved
services, including 3(21) fiduciary
investment advice or 3(38) outsourced-investment-manager
relationships, are also becoming more common. Firms are
taking a closer look at what is included in their fees. Some
are choosing to break up services into tiers, supplying a
premium menu that sponsors may pick from to improve
plan offerings and, in the case of financial wellness, potentially
increase plan participation.
" When you look at the past several years, the fee compression
we've seen on the recordkeeping side and on the advisory
side is a real issue. I believe that's ultimately what has led to
this decoupling of services, " says Jeffrey Petrone, managing
director at retirement consultant SageView Advisory Group
LLC in West Palm Beach, Florida. " Recordkeepers and advisers
have to be competitive, but they also have to find a set of
services that will keep them in business. What we've seen is
that plan sponsors, investment committees, are interested in
these additional services, and they're willing to pay for them
if it will lead to a better offering for participants. "
While splitting up services might lead to profitability,
it does put more pressure on advisers to be granular in
their fee structures and documentation. " The retirement
industry is faced with a pretty significant benchmarking
challenge at present, " says Petrone. " We're seeing costs
shift from an all-inclusive retainer fee to a fee structure
that might include some of these add-on services. When
you look at benchmarking data right now, the questions it
answers are: What is the base recordkeeping fee? And what
is the base advisory fee? But the data [typically] doesn't
break down far enough to include all these other things. I
think we're going to see a process of fee optimization and
enhanced disclosure evolve to account for these changes,
but it will take time to fully work itself out. "
For plan sponsors then, it becomes critically important
to engage with advisers, consultants and recordkeepers to
get as much information as possible. Petrone notes that
ERISA is a process-driven doctrine, so, to the extent that
all parties involved in plan decisionmaking can show,
with strong documentation, that they chose services that
appeared to be competitively priced and well-managed,
then the plan sponsor met its fiduciary requirements
involved in adding on these services.
Early indications are that plan sponsors see the value
of engaging in additional due diligence for services such as
financial wellness programs because these can improve plan
participation and better position individuals to enter retirement.
Jonathan Price, senior vice president and national
retirement practice leader at retirement consultant Segal
in New York City, says plan sponsors increasingly consider
total cost over the anticipated lifetime of a plan.
" With services such as financial wellness or retirement
income solutions, you can actually bring down costs or keep
them lower because you're improving plan participation, "
Price says. " If the starting point is financial wellness and
you're putting participants on a path that will help them
with financial solutions over their lifetime, that ultimately
improves the sustainability of a plan and also leads to better
participant outcomes. " -Bailey McCann
An Evolving Landscape
AS THE PRESSURE to provide scalable
but still innovative solutions grows,
Jeffrey Petrone of SageView Advisory
Group says it is likely that consolidation
will continue, especially in the adviser
space.
" Recordkeepers have
consolidated
and made investments in technology
to support a broader range of
services, and it's the same story in the
adviser space, " he says. " Over the next
five years, especially as many advisers
enter
retirement
age
themselves,
I
think we'll see the industry anchored
by larger firms that have the resources
to respond to growing complexity. It's
difficult to provide all of these different
services efficiently at a small scale. "
Phil Webb of RPS Retirement Plan
Advisors agrees and adds that his firm
is already using new technologies to
manage some of the administrative
burden and improve efficiencies. Still,
he adds, there is room for improvement.
" Benchmarking software, for example,
hasn't fully caught up to everything
we need it to do, " he says. " Much of
the focus within those programs is
on asset size as the basis for a calculation,
but if we include advice in our
service offering, and therefore our fee,
the software doesn't account for that.
You can have a $4 million plan with
30 people calling you for advice or a
$4 million plan with 100 people calling
for advice, and the resources needed to
manage both of those plans will be
different. So we can't fully rely on
technology alone. "
As that consolidation
happens alongside product
innovation, it is likely that,
10 years from now, the retirement
products available to plan participants
will be significantly different, and
so will their total cost, advisers say.
" There's an opportunity for greater
customization going forward, and
that allows for the defined contribution
space to provide more sophisticated
tools, " Holly Verdeyen of Mercer
says. " Plan structures are likely to
evolve, not just toward a greater use
of OCIO [outsourced chief investment
officer] services but through multiple
employer plans and managed accounts
that will allow for lifetime income and
other solutions.
I
think where we're
headed is more of a lifetime-solution
set for participants, with different
structures and fees. That will
also ultimately affect profitability
for recordkeepers and
advisers. " -BM
32 | planadviser.com November-December 2022
http://www.planadviser.com
PLANADVISER - November/December 2022

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