Will work for an unreasonable price.

I was leaving the chainsaw store today after giving Old Trusty a quick tune-up when I saw a flier that said, "Will work for reasonable price". At first, I chuckled. Who would work for an unreasonable price? The creator of the flier - Ron - is offering his services including brush clearing and tree removal. These are backbreaking tasks and Ron naturally wants to be paid fairly.

While the idea of working for an unreasonable (unfair?) pricewagefee is laughable on its face, how many of us do just that? The issue of fee compression in the 401k industry is rampant. I am not a fan of high fees any more than I am of extremely low fees. And yet 401k advisors sometimes seem to be in a death spiral to lower their fees just to win business.

And it is not just 401k advisors. During an Investment Committee meeting today, I was chatting with the Plan Sponsor who has finally had enough of the low-fee 401k platform they are using. I was hired to help the plan but at the time, not change the platform. It was soon clear to me that the platform was not up to snuff BUT THE FEE IS SO LOW. Perhaps it is best not to equate low fee with value?

Here's a fun exercise. Figure out your hourly rate. In the advisor world, for example, divide your GDC by hours worked in a year. When you are taking care of a task, ask yourself if that task is worth your hourly rate. Joked one advisor, "I am the highest paid letter-opener in my office because no one can open mail like me".

Here's a different exercise. Determine how many hours you spend on a plan and multiply that by your hourly rate. Compare that to the fee you are charging. What does that suggest?

One way to avoid the death spiral is to know your value. Internalize what you bring to the table and why people should pay fairly for your services. Do not be afraid to walk away from business. I am not espousing arrogance, mind you but rather calm confidence. Know who you are and what you do, and be able to articulate that.

In my case, I charge $2,000 flat fee per year plus 0.8% on for-profit 401k assets or $2,000 + 0.50% for non-profits. As the plan's assets grow, I benchmark and make sure I am fair to the client and to myself. I've been in the industry 34 years and am a student of the 401k industry. I add value by my experience and ability to simplify matters.

These fees apply to start-up plans as well. In the case of a start-up, I will likely make $2,000 or so in the first year. This is quite reasonable considering how much time goes into setting up and getting a plan running. I also feel that if my fee is too high for a start-up, there likely is a better channel for that plan. I prefer to work with plans that appreciate my service just as much as I enjoy working with them.

And if you are in need of brush clearing, tree removal, and firewood splitting, I might just have a guy for you.