How to Effectively Combat the ‘Free Plan’ Folly
ASK DAVID STOFER for an example of when he absolutely delivered for a plan sponsor and its participants—a case that really stands out—and he gets very specific. That attention to detail is one reason Stofer, Managing Director of Retirement Plan Solutions with heavyweight Mariner Wealth Advisors, is so successful.
It involved an energy company with 800 employees. Stofer noted the firm’s solid human resources team and a previous advisor who was competent and performed well by all accounts. The advisor met with any employee that was interested each year, something company executives and the HR team appreciated. The 401(k) plan’s participation rate was 82%, and the average deferral rate was 6%, “so maybe not a lot to improve on,” Stofer said before running through the numbers.
“We did a review of the plan, and they were paying a total of 79 basis points,” he explained. “Eleven basis points went to recordkeeping; 10 basis points went to the advisor, and 58 went the funds themselves.”
Stofer showed them how he could lower their recordkeeping fee by renegotiating with the same provider, which dropped it to 7 basis points. He also cut the fund fees from 58 basis points to 30, largely using the same funds but with lower-cost shares. Lastly, he dropped the advisor fee to 6 basis points from 10.
Happy but Hesitant
As expected, representatives of the energy company were pleased, but they hesitated, worried about potential plan participant fallout because the former advisor was well-liked by employees.
“However, when HR learned they were paying the advisor over $140,000 a year, they realized they weren’t getting that much in return,” Stofer added.
Mariner won the business, and Stofer’s first act was to remove them from an annuity-based platform and transfer them to a more transparent trust platform.
HR was again hesitant and concerned that employees would be upset because they used to have a “free” plan, and now they would pay the 7 basis points for recordkeeping and 6 basis points for the advisor. It’s all too common (and frustrating); participants mistakenly believe there’s no cost to them for a plan, and often an advisor fails to correct the misconception.
“We scheduled video calls with the managers of each division and explained that the old plan was, of course, never free and presented them with a side-by-side comparison of the old fees and new fees,” he said. “We just wanted to make sure they understood in case employees complained.”
True to form, employees were initially upset when they received their first statement and noticed the charge, so Stofer scheduled calls similar to those held with company managers.
“We again brought out the side-by-side comparisons, and obviously, once they understood what they paid both before and after—and also learned that we would provide educational meetings twice a year—they felt much better,” Stofer concluded. “Since then, we have held four meetings and average 153 participants, resulting in higher participation and deferral rates for those who attend.”
David Stofer, ChFC, CLU, is Managing Director and Senior Retirement Plan Advisor of Retirement Plan Solutions with Mariner Wealth Advisors in Kansas City, Mo.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.