The shift among 401(k) advisors from a mainly commission- to a mainly feebased model continues at a brisk pace. Today, 41% of advisors say they are mainly fee-based, up from only 24% six years ago. Unsurprisingly, heavy advisors (those deriving 60% or more of their practice revenue from 401(k)) led the way; more recently light advisors (deriving less than 20% of their practice revenue from 401(k)) have climbed aboard the fee-based bandwagon as well.
Advisor Compensation Method
Trend
Is your practice mainly fee-based or mainly commissioned-based?
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All of which begs the question of what advisors actually mean when they assert that they are fee-based. Skeptics (cynics?) among us have posited that advisors may be disclosing a fixed fee up front for specific services to be rendered, then selecting a loaded share class to deliver the agreed outcome. Example: my fees are $25,000 on your $5 million plan so 50 bps 12b-1 R shares will do nicely, thank you very much.
The data say otherwise. Fewer than one in five advisors (17%) say they most often use this approach, with heavy advisors somewhat less likely to do so (14%). For all advisors, a wrap fee on plan assets is by far the most common interpretation of “fee-based.” For heavy advisors, however, directly billing the plan sponsor is the vehicle of choice.
Fee Collection Preferance
Base: compensated mainly with fees
By 401(k) Share of Income
I'm going to read three ways you can collect your fees. Please tell me which one you rely on the most.
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About the Research
These findings are based on telephone interviews with a representative crosssection of 628 advisors deriving income from 401(k) plans conducted in waves between June, 2010 and May, 2011.
About Brightwork Partners, LLC
Delivering both multi-client and custom studies, Brightwork is a research-based consulting firm with a special focus on investment, product and distribution issues in the retirement services industry; www.brightworkpartners.com .
For more information: Merl W. Baker or Ronald L. Bush, 203.487.2000; mbaker@brightworkpartners.com , rbush@brightworkpartners.com