What to Know about Fees When Hiring a Retirement Plan Advisor
Looking for the right retirement plan advisor? In this episode, Stephen Puckett of Fiduciary Pension Partners breaks down how retirement plan advisory fees really work—what you’re paying for, how services are structured, and what plan sponsors should ask before hiring. Jeffrey Snyder, Broadcast ...
Overview
Looking for the right retirement plan advisor? In this episode, Stephen Puckett of Fiduciary Pension Partners breaks down how retirement plan advisory fees really work—what you’re paying for, how services are structured, and what plan sponsors should ask before hiring.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Stephen Puckett of Fiduciary Pension Partners. Steve, always great to see you. Thanks for joining us in the program this morning.
Stephen Puckett, Fiduciary Pension Partners
Thanks for having me, Jeff. I appreciate your time.
Jeffrey Snyder, Broadcast Retirement Network
I appreciate your time. You're probably the busier person. So as we discussed offline, we recently did a program with Bob Scherzer of World Investment Advisors discussing how to hire a retirement plan advisor.
And there's a lot that goes into that due diligence, kind of the ins and outs of different types of services. What I was hoping we could do is talk about the fees of hiring, you know, that go into the retirement plan advisory business. So let me start with a very broad question with you, if I may.
What are the different types of fee structures that retirement plan advisors can work with?
Stephen Puckett, Fiduciary Pension Partners
Excellent question. And again, I'm going to take that question in two parts, because I think when it comes to fees, you have the fees for what services are you asking for. And services as a, you know, fiduciary consultant is very broad.
So I think you need to know, you know, what are the services that you're buying and those services kind of fall into five buckets. And as a consumer, as a plan sponsor, you want to make sure you know what you're paying for and you may not need all five buckets. So why pay for them if you don't want them?
So the first bucket is that investments, you know, the fiduciary investment analysis, the co-fiduciary under 321, the full discretionary fiduciary under 338. And we'll talk more about that. But ultimately, one thing you're buying is investment analysis, investment support.
And again, there's a lot of services in that, you know, in terms of how many times you're meeting with your fiduciary investment advisor, whether that's quarterly, semi-annual or annual, you need to know what you're buying. So, you know, that's one part of the services. Second part is, you know, the fiduciary governance.
Are you paying for someone to write a committee charter to create an investment policy statement to babysit your plan from a fiduciary standpoint? That's another service. Third service is education, financial wellness, meeting with your employees either locally at your place of business or remotely.
You know, that's another service that you're going to have to pay for if you want it. The fourth service, obviously, vendor management. Do you need someone to assist you with working with your service provider, assisting with, you know, problem loans, hardships, again, dealing with distributions or dealing with even payroll contributions?
That's a fourth service. And then the fifth service is benchmarking, you know, benchmarking fees, benchmarking services. So the most important when you're asking and you're looking for a consultant and you're, you know, trying to figure out who, you know, who you want, first and foremost, flexibility, flexibility on those services.
So I only want one or two. I only need one meeting a year. I only need two meetings a year.
I don't need benchmarking or I do need benchmarking. So first thing you want to ask is how flexible is the level of service that you can provide? That's most important.
So flexibility, again, you're going to have all the due diligence questions that you're going to have to ask, but ask how flexible the consultant is. And then you'll get to the flexibility of the fees because that is most important. And that is, do you want to pay for the advisor's fees in the plan or outside the plan?
That's most important. Again, for-profit organizations get to deduct as a business expense, the cost of their consultants. So if you're a for-profit organization, you may want to pull that outside of the plan.
If you're a non-profit or you don't have the money to pay outside the plan, maybe you want the plan to pay for it. And that can be either paid out of plan assets that can be paid out of a forfeiture account that can be paid out of a plan administration account. So how or who is paying the fees?
Most important. And then you get to how are those fees structured? Is it a percent of assets?
Is it a retainer? Is it a flat dollar, a retainer fee? Or is it a flat dollar plus an inflation rider?
Or is it, you know, by the hour? Again, the great thing about when you're doing that advisor search, ask them how flexible they are. Because if they're not flexible, if they start with the answer, my broker dealer requires, or my broker dealer demands, or my broker dealer only allows, then that's someone you don't want to hire.
Obviously, you want to have a consultant that is as flexible for you and how you plan and what goals you want to accomplish.
Jeffrey Snyder, Broadcast Retirement Network
So, you know, Steve, I would agree with you just as a person on the outside now. You know, whenever I buy something in general, I want to pay for what I buy, not for what I'm not going to use, right? You buy a car, maybe this is not the greatest analogy, but you buy a car, you get a certain package, and that package includes features and things that you're going to use.
It's, I think, very analogous to what we do in the retirement industry. Do you think that in today's market environment, that plan sponsors, I mean, they're probably bombarded with people like you and I reaching out to them. Do you think that they're as savvy as they need to be, or do you think more, let me put it this way, is more education needed around the fee structures?
Put it that way.
Stephen Puckett, Fiduciary Pension Partners
I absolutely think more education is needed for plan sponsors and to understand the services and fees. Again, we compare, you know, fiduciary consulting, pension consulting to a car or a widget. Again, we can touch the car, we can touch the widget, we can walk around the car, we can see the car has four tires, we can see that there's a steering wheel, we can see that it's, you know, all wheel drive, you know, manual or automatic.
Consulting services you don't see. And unfortunately, the history of consulting and financial advisory is I will do all my work in year one, I will show the client how good I am, how talented I am, and then I can put a fraction of the service in after that. And so what typically happens in the consulting and financial advisory world is, again, you can get the prospect or the consultant that will say, hey, I will deliver X, Y, and Z.
But that's year one. Year two, it turns out to be just X. And then year three, it turns out to be nothing.
So that's why I do think more education. And again, when you're interviewing them, you know, talk about, you know, flexibility. Because if you don't need fee benchmarking annually, well, then just pay for fee benchmarking every other year.
It will save you cost.
Jeffrey Snyder, Broadcast Retirement Network
Details
So I wasn't aware, Steve, that they actually sold manual transmissions anymore, but maybe they do for certain types of vehicles. But in all seriousness, let me ask you, you seem to be alluding to and I want to ask you about performance-based fees. So is it typical for, you know, for retirement plan advisors to do performance-based fees?
And what I mean by that is, did they deliver on X, Y, and Z in a timely manner? I'm not talking about fund performance per se. I'm talking about what I think you're trying to articulate, which is, did they do what they were supposed to do?
And can you tie that back to the fee structure?
Stephen Puckett, Fiduciary Pension Partners
Yeah, and I think that is where the industry is changing too. I think traditionally in the financial services world, it was a percentage of assets. I received a percentage of assets.
And again, if the assets went up, my fee went up. I mean, you can see the commercials on TV. That's like, when you do better, we do better.
The problem is the work that we do doesn't change based on whether there's $10 million in the plan or whether there's $100 million in the plan. The work changes based on how much services, what level of services, what type of services you want me to accomplish. So that's the more important thing.
Having a fee that's directly tied to assets is probably not the best thing that a plan sponsor should look at. And especially as that plan sponsor gets larger in size and in employees, probably should be looking at other things like that.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. How do you differentiate? You mentioned in the five buckets, the financial wellness aspect, right?
Helping participants. How do fiduciaries kind of, and this is maybe not as much of a fee question as it is. How do you, maybe a fiduciary question.
So if a firm is providing financial wellness or financial education, which would include some level of investment advice or guidance, but then they're also acting as a 321 or a 338 or a 316, how do you balance that to make sure that there's no conflict of interest? So less fee related and more philosophical question.
Stephen Puckett, Fiduciary Pension Partners
Well, I think from a plan sponsor standpoint, again, the most important thing that we can do for our plan sponsor clients, for our organizations that hire us, whether they're for profit or not for profit, is to protect them from the legal aspects of offering a plan. So again, everything we look to do for our clients is to protect the committee, to protect the organization, to protect them from any future lawsuits. So it's the exact same way here.
When you talk about education, whether you talk about financial wellness, whether you talk about financial planning, whether you talk about doing education webinars, whether it is one-on-one support, the most important thing that a plan sponsor, an organization can do is document. Document what was discussed, document when it was discussed, document what questions came out of it. And again, if there are any conflicts, document the conflicts.
Again, if you do have a 321 or 338 investment fiduciary that is getting paid by the plan sponsor, but potentially could be paid by the participants, it needs to be documented. Again, ERISA doesn't say you cannot have conflicts of interest. It just says that you need to know what they are.
It's just like fees. You don't have to go and buy the cheapest car. You know, you don't need that, you know, Taurus.
You just need to know what you're paying and what services you're getting for that. So that's the most important thing that we look at is document, document, document, fiduciary governance, committee charters, investment policy statements, education meeting minutes, committee meeting minutes, everything you can document to make sure that, you know, the organization, the committee is protected.
Jeffrey Snyder, Broadcast Retirement Network
Steve, can you change the fee structure? Like, so say you agree, maybe your plan's 10 million, or maybe you start off using a certain level of services and you want more or you want less. Can you change that?
Is there flexibility within the retirement plan advisor community to change over time as needs change?
Stephen Puckett, Fiduciary Pension Partners
Yeah, I mean, I would demand that. I think, you know, what your needs are as a 50 life organization to now, maybe it's a 100 life organization to maybe a 200 life organization, or just the opposite. Maybe you're going from a 200 life, you divest from an industry or a job, and now you're down to 25.
Absolutely. Again, you may have wanted 338 full fiduciary discretion. And maybe what you found is you don't, as an organization, you don't agree with not having a choice in the investment lineup that is offered to your participants.
So maybe you want to look at changing to be a co-fiduciary relationship under a 321 where the committee members have a decision-making authority where they can make a decision on whether to offer or not to offer a particular investment. Absolutely. I think if, you know, as a consumer, if you want to buy a service and say, hey, Jeff, can you give me a three-year guarantee on my pricing?
Or Jeff, can you give me a five-year guarantee on my pricing? Great. Absolutely.
We would wholeheartedly recommend that. But also, if you don't want to have that guarantee and you do want to reprice your services or your level of services or your fees, absolutely. We've had clients where we charge billable hours, where we track our hours and we will invoice them on a quarterly basis for our hours that we've worked.
And then maybe they have had change in the committee and now they want to go on a retainer basis. And so now they basically just want to go to a flat fee, quarterly fee, regardless of how many hours we spend. Absolutely.
Same thing from the 321 to 338. Absolutely. You definitely, every three years, five years, you should look at what services you're receiving and what services are important to you and what you're paying for those services.
Absolutely. Yeah.
Jeffrey Snyder, Broadcast Retirement Network
We always say you should never... I'm a big fan of Ron Popeil. He used to sell all those appliances and he would say, you could set it and forget it.
As a fiduciary, you probably don't want to set it and forget it. Steve, we're going to have to leave it there. Thanks so much for joining us.
And look, we look forward to having you back on the program again very soon, sir.
Stephen Puckett, Fiduciary Pension Partners
Absolutely, love. Thank you for your time and appreciate talking.
Source
Originally published at www.thestreet.com.
