Retirement advisers emphasise value in fee discussion

Retirement advisers are facing pressure to charge less for their services, but those who provide advice either solely or mostly to companies — the “sponsors” of the plans — report that they need not cut their fees as long as they can demonstrate they deliver better value for money.

This year’s FT 401, the fourth annual list of the top US retirement advisers, has identified the pressure to lower fees as the most pervasive challenge, cited by nearly half of those on the list.

The fee pressure comes from the companies’ need to justify costs to employees and from competition from new market entrants, according to the FT 401 constituents.

This is backed up by industry data. Fees remain a key consideration for companies, according to a survey of 152 defined contribution plan sponsors conducted by investment consultancy Callan in the autumn of 2017.

The data showed that 83 per cent of the respondents had calculated, within the preceding year, the overall fees they pay advisers, providers and custodians. Of the 152 respondents, 41 per cent were able to secure reduced fees from their plan providers.

For their part, the FT 401 retirement advisers say they subscribe to fee benchmarking services to show where they sit in terms of the industry range.

The advisers argue that as long as they are not among the most costly, their clients appreciate the specialist services they provide.

Steve Bogner, a New York-based adviser at Treasury Partners and a constituent of the FT 401 list, says specialists deserve to be paid their fees “for what we do behind the scenes and on the ground”.

A specialist adviser’s ability to mitigate risks for the plan sponsor is a bigger driver in their selection and retention by those sponsors than fees, according to Mr Bogner.

He says sponsors’ needs vary depending on the business goals of the company, the size of the workforce, the amount of plan participant assets and how big a priority the financial wellness of the plan participants is.

In one of the latest retirement plan accounts Mr Bogner signed as a client, he helped the sponsoring company with services including creating an investment policy, a financial education policy for savers as well as a fiduciary audit file to document processes and decision-making.

Mr Bogner says he also met the more complex demands of improving the plan sponsor’s technology and delivery platform, as well as organising a new fund line-up for plan participants.

Plan sponsors want “no headaches, no problems, no liabilities” and they are willing to pay the price to get that peace of mind, says Jim Sampson, a Rhode Island-based adviser at Hilb Group Retirement Services. Mr Sampson also featured on this year’s FT 401 list.

Tim Slavin, a New York-based senior vice-president for retirement solutions at Broadridge Financial Solutions, the research partner for the FT 401, says that in order for specialist advisers to be able to stand their ground on fees, they must offer services that are as customised as possible to the particular needs of each individual pension scheme.

“There should definitely be an adviser-plan participant connection,” says Mr Slavin. “But this is not something advisers can do without plan sponsor involvement.”

The delivery method for financial literacy programmes and support is critical, Mr Slavin argues, because the pension savers are typically busy employees who prioritise getting through their workload for the day over attending to retirement planning.

Retirement advisers are engaging savers more in the digital space, which allows them to provide regular access and more personalised and relevant services at savers’ convenience.

“The only way to stay on top of . . . engagement is through technology,” Mr Slavin says. “The days of holding quarterly on-site meetings are on the wane. Nobody has time for that and nobody wants to do it. People want a convenient way to access their plan advisers in a timely manner.”

Plan sponsors are increasingly looking at the customised services on offer, when deciding if advisers are worth their fee.

To relieve some of the pressure on charges, advisers often look to shift fee pressure on to the investment managers.

Treasury Partners’ Mr Bogner says: “What I am trying to do with the asset managers is get them down to their skinniest share class,” referring to the manager’s share class that would have the smallest fees for investors.

“But if there’s a small active manager who can provide alpha beyond the index, I’m willing to pay a higher price for that manager because I’m paying for performance, and plan sponsors understand this.”