The 20 Rising Stars of Retirement Plan Advisors 2007 - (Page 9) not only more transparent, but create more flexibility for both advisors and plan sponsors. Here, in a nut shell, is how free-based comp works: • Asset-based fees, expressed as basis points, are paid out based on the entire plan’s assets. For instance, a plan with $50 million in assets might be charged 20 bps in fees; a plan with more assets would be charged less in basis points, while a plan with less assets might be charged as much as 30 bps or more. • Per-person fees are charged in a similar way, with more perplan participants being charged less than plans with fewer employees. • Transaction-based fees are generated at the time of purchase of mutual funds, annuities or other investment vehicles. • A flat-rate, considered the easiest to implement, is based on services provided—including investment recommendations, on-site visits, one-on-one advice services, fiduciary responsibility—rather than plan size. Advisor Compensation Method As far as you know, is advisor compensated mainly by a fee you pay, or mainly by a commission paid by a provider? Some combination 4% Industry Compensation Is Hard To Discern The complex fee structure among advisors makes it difficult to generate an estimate of advisors’ salary. Industry experts say salaries run the spectrum and there are no statistics or studies that document how much advisors take home in an average year. Compensation largely depends on the size of the plan, the fee structure and whether annuity products are being used in the plan. The most frequently hired advisors tend to fall in the following categories: Registered Investment Advisors (RIAs), Third Party Advisors (TPAs), specialized fee-based investment consultants and financial planners, according to the Brightwork Partners survey for MassMutual conducted in 2006. While the typical tenure of an advisor is around six years. An advisor’s term tends to be higher among smaller plans, higher account balance plans, and among plans relying on TPAs, RIAs and benefits consultants the survey showed. KM formation they say. This means the bulk of new assets for advisors are going to come from existing clients in the form of increased contributions, cross selling, rollover assets and insurance products. While this competitive pressure is challenging, opportunities will continue to exist among unadvised plan sponsors, advisors willing to straddle the defined benefit/defined contribution market and those who recognize the opportunity in asset disbursement. “Lots of vendors and advisors are picking up new assignments when they can advise on both plans [defined benefit/defined contribution],” said Joseph J. Masterson, senior v.p. and chief sales and marketing officer of Diversified Investment Advisors. Mainly a commission 29% Not sure/ refused 6% Mainly a fee 61% Source: Brightwork Partners LLC With an increasing emphasis on fee disclosure and transparency, advisors that fail to embrace the shift toward a fee-based compensation over commission-based compensation will be particularly at risk. Moreover, the study reveals that fee-based services are emerging as the fastest growing segment in the market. COMPETITIVE PRESSURES/OPPORTUNITIES Retirement experts indicate that the industry as a whole is struggling with net plan growth; there simply isn’t much new plan SEPTEMBER 2007 Additionally, while the number of active defined benefit plans is on the decline, there are a number of foundations and endowments that require expertise in alternative investments. Charles Salmans, a spokesperson for Mercer Consulting, said tremendous opportunity still exists for capable advisors that can advise defined benefit plans on investment options. The MassMutual white paper, conducted in 2006, would seem to indicate there are plenty of opportunities. It found that 42% of middle market plan sponsors surveyed still had not yet engaged an advisor. That’s a lot of plan sponsors that may be open to an advisor. RETIREMENT PLAN ADVISORS RISING STARS 9
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