Are Retirement Plan Advisors Underpricing and Undervaluing Themselves?

Got five minutes? The topic of this blog post is covered in our Fiduciary Five Podcast series hosted by Chuck Hammond of the 401(k) Study Group. The Fiduciary Five Podcast…your fiduciary questions, answered in about five minutes.  To listen to the related podcast, click here.


The oxford dictionary has indicated that the Word of the Year for 2017 is youthquake, ‘a significant cultural, political, or social change arising from the actions or influence of young people’.  However, those of us who are professionals in the retirement plan industry could make a strong argument for ‘Fee Compression’ as the word of the year.

Like many retirement plan service providers, retirement plan advisors may be unintentionally participating in a race to the bottom related to their fees. I am certain it is a race that no one wants to win.  Time spent servicing plans, commitments to sponsors and participants, not to mention liability are all increasing.  Exacerbating the situation has been the increased pressure to provide greater services, further shrinking margins – advisors are feeling the squeeze.

There is not a segment of the market that’s been unscathed. According to Ann Schleck & Co. the average revenue for services to a $50M plan decreased 12.5% between 2014 and 2016 and a 5% decrease for plans $25M and less over the same time period, with the latter group reporting significant pressure to enhance services.  Plans over $400M saw a fee reduction of 26% during the same period.

If the only solution to winning new business or fending off competitors to retain existing clients is by reducing fees, which has become the norm for many, then the race is well under way.

What are plan sponsors looking for from their advisors? Two recent surveys shed some light on what advisors should be focusing on with clients and prospects.

According to the Fidelity Plan Sponsor Attitudes Survey, the top two reasons a sponsor chose to hire an advisor were:

  • 37% Cited concern about fiduciary duties
  • 27% Cited company growth has led to a more complicated plan

The 2018 Callan Defined Contribution Trends Survey indicates that plan sponsors had rated Participation Rate/Plan Usage as the number one most important measure of plan success.

So, what is the antidote to commoditization of advisor fees? After spending almost 20 years on the advisor side of the desk, prior to moving to my institutional role, I found that the key was to be able to understand the role of the sponsor.  By positioning oneself on the same side of the table as the sponsor, you are able to better understand their goals and objectives and guide them to the right solutions and service providers.

Today’s plan sponsor is looking to partner with specialists that can not only answer their questions, but more importantly know the right questions to ask.  The old adage of “find a need and fill it is very true.  Although, I’ve found that by identifying potential areas of risk or opportunities for improvement that someone else did not explore was more beneficial.  Often, plan sponsors don’t know they have a problem until they are offered a solution.  In taking the proper time and due diligence to thoroughly review and understand their objectives and then, offering creative, thoughtful solutions, retirement plan specialists can separate themselves from the pack.

Specifically, to remove themselves from the race to the bottom, advisors will need to be able to deliver tangible benefits to plan sponsors and participants.  Plan sponsors are becoming more aware and are more concerned with fulfilling their fiduciary obligations. Rightfully, they are looking to partner with experts, to assist them with these duties.  They are also more focused than ever on operating a successful plan, meaning better participation rates, higher deferral rates, and most importantly, greater numbers of employees projected to be on track for a fully funded retirement.  Advisors that work in coordination with service providers that can show measurable, tangible improvements to the overall health of the plan will be able to remove themselves from the downward spiral of fees.  This is done by improving the percentage of employees on track for retirement, reducing administrative burdens and mitigating and transferring liability for plan sponsors. 

Absent the ability to deliver this ‘tangible value statement’, you may want to lace up your shoes. It’s going to be a tough race.  However, if you are interested in learning more about how Unified Trust can help you add value in a quantifiable and scalable way, give us call today.

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