When Hardesty joined Kasten, she was technically the receptionist and the firm's only employee. Today, she oversees operations and compliance at the firm. "We have the OCC [the Office of the Comptroller of the Currency] and their auditors in here all the time, which is a huge expense when compared with being an RIA," Hardesty says. The audits cost about $50,000 annually, while four required independent audits cost approximately $120,000 a year.
The firm's biggest expense, however, is technology. But it is also its major selling point. The proprietary software Kasten helped develop allows the company to do 100% pass through of the revenue sharing fees that mutual funds pay his firm for sales. Why is this important? Fund companies either don't track their fees at all or they do it incorrectly about 40% of the time, Kasten says. Equally critical, the Department of Labor says if you take the fees and offer active discretionary investment services, you must disclose all finder's fees and pass them on to the plan sponsor to help them defray costs.
"Unified Trust not only tracks and reconciles these fees, they collect them, too," says Tidmore. "When I was a registered rep, I had no idea that these finder's fees were being paid. But even if I did, I had no way to calculate them or say whether they were being paid correctly or incorrectly. And not only couldn't I do it, neither could the plan sponsor. It's difficult if you're not at the institutional level."
That good news, in an age where hidden fees, especially in retirement plans, are getting insurance companies and others in trouble, means UTC is ahead of the curve. To combat the problem, the Department of Labor will require that all plan providers track and offset finders' fees for clients by 2006. UTC has been using the their fee offset model since 2000.
"In June I was at a conference in Washington, D.C., and folks from the SEC and OCC and Federal Reserve were there describing what they want to see for mutual fund revenue tracking starting in January 2006. A lot of people in the room had no idea where to start. Our system lets us to do tracking and invoicing for both wealth management and 401(k) clients," Hardesty says. "Our job is to give that money back to clients."
Which means running a tight ship-nothing new for Kasten or Hardesty. With 42 employees, net profit margins are running in the 22% to 24% range, though that could increase when they hit the $1 billion mark in the next 18 months. "We're looking for controlled growth, and with the trust company, we have the right model to accommodate it," Kasten says.