Industry Insight from Fred Barstein
The Confusion with Advisor Pricing within DC Plans

It seems like the main topic of discussion these days is about fees in what has become a deflationary DC market for both providers and advisors.  Much of the proposed legislation and regulation is focused on fees and transparency as well as providing advice to participants.  While we expect DC advisors to affect participant outcomes, it becomes nearly impossible if we expect institutional advisors to perform retail services at institutional pricing.

There is no question that there has been significant price pressure on advisor fees over the last 10 years, especially since sponsors have become more aware and sensitive about them.  There are huge differences between what advisors charge based on market size and the various services offered, just as there are huge differences between the value a sponsor and their employees get from an experienced advisor compared to a blind squirrel.  One of the big issues often not addressed is the difference between retail and institutional pricing and services.  Most successful DC advisors are good at selling to companies, whether big or small, and then servicing that institution.  Most are not very good at marketing to the participants and servicing their needs.  Everyone sees the obvious opportunity that DC advisors have in cross selling not only rollovers, but other financial services to participants.  At the same time, many criticize these same advisors for not taking advantage of the opportunity.  Not only do most DC advisors not have the skill set or staff to market to and service participants, but the pricing makes that activity less than attractive.  Charging a $10 million plan 25 BP’s or $25,000 per year to do quarterly investment reviews and some fiduciary benchmarking is fair; however conducting one-on-one meetings with participants for the same price is ridiculous.  Even if the advisor gets access to the participant’s entire portfolio and could charge them separately, the industry has to recognize that 25 BP’s is way below market.

There is no easy answer about how DC advisors can leverage their trusted position with the company to start working with the employees.  Bringing in another advisor with the right skill set is fraught with danger unless there is complete trust between the two groups.  But before we begin to address business model questions, we should start to recognize the different pricing models required for institutional and retail services within one corporate retirement plan.

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