Advisors across the retirement plan industry often grapple with questions about compensation models. Whether it’s determining how much to charge based on assets or deciding when to use a flat fee, these decisions are made even more complex due to evolving technology, industry changes and rising client expectations.
In his role as Director of Business Development, RPAG’s Luke Vandermillen Jr. speaks with advisors on an almost-daily basis. Based on his in-depth discussions, he notes that many industry-leading advisors have seen their role expand significantly in recent years, prompting them to wonder:
- How much to charge for managing plans based on assets.
- When to use flat fees instead of asset-based compensation.
- How often to meet with plan sponsors and whether meetings should be virtual or in-person.
- What to charge for employee education and other participant services.
Vandermillen says: “Advisors must now balance traditional compensation strategies with the growing need to offer a broader range of services, all while remaining competitive.” The ability to adapt and refine approaches to compensation can be a critical factor in ensuring both profitability as well as long-term client satisfaction.
Industry Changes
Increasing competition, the rise of new technologies and legislative changes such as SECURE 2.0 have all impacted how advisors manage compensation. “No longer is the traditional advisory role limited to retirement plan management,” he notes. “For advisors setting the standard, it extends to providing participant education, co-fiduciary and ERISA expertise as well as insights into the provider marketplace, adding further complexity to the advisor-client relationship.”
One ongoing challenge is fee compression, which can make it more difficult for advisors to maintain profitability. Advisors must continuously innovate and adjust their compensation models in response to client needs, industry demands and economic pressures. As the scope of advisory services expands, it provides valuable opportunities for advisors to explore new ways to differentiate their offering.
What the Data Reveals
He recently ran the numbers on 83,014 retirement plans across 552 firms in the RPAG database, ranging in size from $500,000 to $1.4 billion in assets. It revealed that 84% of plans use asset-based compensation and 16% use flat-fee compensation. Moreover, the average advisor fee by plan size demonstrates a downward trend as plan assets increase:
- Plans under $2M: 0.55%
- Plans between $2M and $5M: 0.35%
- Plans between $5M and $10M: 0.26%
- Plans between $10M and $25M: 0.23%
- Plans between $25M and $50M: 0.16%
- Plans between $50M and $100M: 0.10%
Key Differentiators for Successful Advisors
Vandermillen observes that top-performing advisors set themselves apart by offering a comprehensive suite of services beyond basic investment analysis. He says that those who offer a full-service approach are more likely to retain and attract clients. As the industry continues to evolve, it’s crucial for advisors to evaluate their compensation models to ensure profitability, particularly when servicing smaller or startup plans. By leveraging powerful tools like PlanFees Prism and Prism365, advisors can more accurately and competitively price new business and benchmark fees.
He stresses the importance of proactively discussing fees with clients and setting realistic expectations for service delivery. “Thoughtful pricing, developing a strong value proposition and an efficient service delivery model,” he says, “can help advisors stay on the offense and ensure long-term success in an increasingly competitive marketplace.”
