September 5, 2013

How to Get Paid for Retirement-Plan Advice: Pretax Dollars

If you’re giving advice to an individual company retirement plan, you can get paid directly from the Self Directed Brokerage Account option

Many advisors get tripped up by the issue of how they get paid for giving advice to individual company retirement plans.

I was too naïve and stubborn to even think about such a question when I began calling my clients about their company retirement plan accounts 14 years ago. At the time, I did not realize the enormity of what I was trying to do. I never had a business plan. I never addressed all the logical reasons that “it could not be done.” I was only thinking of what would be possible.

I called my long-time clients and asked them for copies of two things. First, the entire menu of mutual fund options available in their company retirement plan menu. Second, a copy of their most recent individual company retirement plan account statement.

The response was great. Once I had the entire universe of company retirement plan options, I then compared it to my clients' individual company retirement plan account holdings. I found that a handful of local company retirement plan sponsors offered the Self Directed Brokerage Account (or SDBA) option in their company retirement plan menu. These companies were primarily law firms, doctors groups and large Fortune 500 companies headquartered in my local market.

After several very frustrating conversations with the service representatives at the largest company retirement plan providers, I was finally able to determine that my firm’s investment advisors fees could be paid by my clients using the SDBA option. The SDBA option allows the individual company retirement plan participant to designate a third-party advisor the ability to view, trade and, yes, bill advisory fees.

One option is for the individual company retirement plan participant to pay quarterly advisory fees directly to a third-party advisor or advisory firm. These advisory fees are paid directly from the money market balance in the SDBA.

I have built my individual company retirement plan advice niche business partially with SDBA accounts. Many of my individual company retirement plan clients work at companies that provide the SDBA. Many of my clients’ spouses work at similar companies. They are also now individual company retirement plan account advice clients.

Ask your client for a copy of their company retirement plan menu, and then compare their individual company retirement plan account holdings to that menu.

Do your homework on the SDBA. Your existing clients are the key building block for a niche business in providing advice within the individual company retirement plan marketplace.

What could be easier than getting paid quarterly advisory fees billed directly from a client’s company retirement plan account?

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To learn about a second way to get paid for giving advice to individual company retirement plans, see Part II of this blog posting.

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