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charging you half that, " Hilbrant says, speaking hypothetically.
" That's a pretty clear basis for renegotiating.' "
SRG also benchmarks its fees annually and shares the
results with its clients. " If the benchmarking shows we're
low, we can tell the client that it's time for us to adjust it, "
Hinderstein says. " I think it's important to have the backup
data, rather than just shooting from the hip. "
It is also important for an advisory practice renegotiating
its fee to document what specific work it has done for that
plan, including any recent increase in services requested,
Hinderstein says. " If you need to have a fee conversation, it's
often really a services conversation, " he says. " It's an issue
of, 'Hey, it's been a great relationship for five years, and now
we're doing all these additional things for your plan. We need
to adjust the fee. "
Applegate recently had smooth renegotiations with a
sponsor of a $2 billion plan with rapidly growing participation.
" You've got to be methodical about it: Renegotiating
can't be a 'land grab' by the adviser, " he says. " I showed the
sponsor, 'Here's the benchmarking for what is considered
to be a reasonable fee for an adviser's work with a plan like
yours. It shows that our fees are not only in the first quartile-the
lowest quartile-but are half of what the benchmarking
shows is the reasonable fee.' I also showed the
sponsor that by adjusting our fees, we would still be at the
same fee, on a per-participant basis, that we've had for the
past several years. " The client agreed to the new flat fee.
If there is a mismatch of services and fee, an adviser can
try to renegotiate the amount of time-consuming services
a client receives, such as on-site participant education
and sponsor meetings. " The easiest answer, there, is, 'Our
time is valuable,' " Hilbrant says. " I can say to a client, 'If
I'm in your plant 12 days a year doing education, that's
what needs to go.' We can leverage resources from a plan's
recordkeeper to sit down with employees at the client's
plant and do education. "
Some sponsors have no problem with decreasing the
number of committee meetings, Morris says, which reduces
an advisory firm's expenses, as an adviser has to travel less
often. " If we're doing quarterly meetings, we can talk to the
sponsor about going to semi-annual meetings and keeping
the fee the same, " he says. " Or if the sponsor wants to keep
the quarterly meetings, then our fee needs to go up. That
way, the client can make a choice. "
Preventing Unprofitability
According to sources, advisers have several means to keep a
plan from turning red on their spreadsheet.
Choose carefully how you spend your time. Hilbrant's
firm spends considerable time doing on-site group and oneon-one
participant meetings across the country, and having
follow-up conversations with participants by phone. " Some
advisers don't want to do these types of time-consuming
services, " he says. " It's been a real advantage and differentiator
for our work efforts. " On the other hand, he says, his
firm does not aggressively promote conducting formal vendor
reviews, doing them only every three-plus years; there are
other ways to judge fee and service competitiveness, he notes.
As Philip Chao sees it, too many plan advisers spread
themselves too thin. " We don't do 90% of the stuff other
advisers do, " says Chao, principal and founder of advisory
firm Chao & Co. Ltd.
in Vienna, Virginia. " Many advisers
don't know where their value is. They are just going in and
commoditizing themselves: Today it's, 'Let's do HSA [health
savings account] education,' and tomorrow it's, 'Let's work
on student loan debt.' "
Chao & Co. concentrates on a couple of core, in-depth
services for plans. " I have a very defined model, and my
model is that I do two things, " Chao says. " Number one, I'm a
fiduciary adviser, and I offer plan sponsors a prudent investment
process. And, number two, I am very good at being a
quarterback, so I help sponsors prudently select and monitor
their other service providers. "
Clearly define service deliverables. Strategies Capital
Management (SCM), headquartered in Denver, specifies in its
flat-fee contracts exactly what it will do for a client, and notes
an additional hourly fee will come into play only if services
exceed the work SCM and the client agreed to, says President
Tom Gonnella. " The service agreement details, in line items,
all the different services that the client will get from us, and
we price it accordingly, " he says.
Managing a client's expectations about the services it will
receive is crucial, says Maresh. " I always explain to clients
at the start of every year, 'Here is " a year in the life, " working
with us.' We show what we're going to do for them. Then they
know what to expect, and it gives us accountability. "
Be transparent about when fees will rise. Some advisers
charge an additional, specified fee for any extra work beyond
the service agreement, and some incorporate an annual costof-living
fee adjustment into the contract. With more advisers
moving from an asset-based fee to a flat fee, Maresh says,
that means they no longer automatically get a fee increase
as plan assets grow. " In our practice, we now put an annual
fee increase in our service agreements, and that's usually
between 3% and 5%, " he says. " Our clients understand there's
an increase in our costs every year. And 3% to 5% is not a big
increase to them. Our clients get it. "
Offer a multi-tiered service model. SCM did an in-depth
study of its profitability five years ago. The study found that
the firm sometimes gave small, lower-revenue plan clients
the same full level of service as its large, higher-revenue
clients. " So we bifurcated our services and developed a
second service model that's more scalable and economical, "
Gonnella says. Clients choosing that newer model-mostly
plans with less than $10 million in assets and just starting
to work with a specialist plan adviser-are paired with a
less-senior adviser, get less in-depth reporting, and
have an investment menu limited to target-date
funds (TDFs) or target risk funds.
" This has really helped us to educate our
clients, " Gonnella says. " We can tell them
at the outset, 'Here are a couple of service
options. Here's our typical full-service
model, and here is what it costs. If you
don't need all those bells and whistles,
and you want
something simpler and
more economical, here's our second model,
and here is what it costs.' " -Judy Ward
planadviser.com September-October 2019 | 23
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PLANADVISER - September/October 2019

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