When BeManaged sets up at the company's headquarters, Amway employees can go to the 401(k) Web site and schedule a Web consultation and then come to one of the spots where BeManaged advisors are waiting. "Consultations are free," Griffeth says. "We can control risk, control the contribution and control their behavior."
BeManaged charges a standard fee of 15 basis points, which is capped at $125 per quarter. The company is growing slowly and the Amway account was a big break. "Amway is very well known for its culture and a lot of other employers took notice," Griffeth says.
Another firm focusing on this niche is Lager & Co., in Minneapolis. Founder Ric Lager, who left Smith Barney in 1998 to start his RIA firm, uses the same fee schedule for 401(k) plans that he uses for other money management clients, which is 150 to 175 basis points for a $500,000 account. The fee for larger accounts tapers down to 100 basis points. Lager does not offer other financial planning services. Because he often does business with 40 or 50 people at the same company, he also gets economies of scale.
Lager says advisors focusing on 401(k) advice can make use of the self-directed brokerage windows available at many companies, including most of the Fortune 1000 firms. "The self-direction participation rate is under 3%," Lager says, and that is a place he feels he can add real value. His 401(k) clients can use ETFs to invest in oil and gas, gold, and "to really participate in worldwide growth," he says.
Lager is a big fan of the technical analysis of the firm Dorsey Wright & Associates, and he has used it to assemble stock portfolios. "Dorsey Wright is a mom and pop firm in Richmond, Va., that is the world class provider of point and figure research," Lager says, adding that he is "100% against buy and hold, asset allocation and modern portfolio theory."
Charles Scott, who has been managing money for 18 years, also uses Dorsey Wright, having turned to the firm's technical analysis after the tech crash in 2000 when several clients he had left behind in Seattle (following his move to Arizona) lost a good deal of their money.
Scott (whose site is Real401kadvice.com) charges 75 basis points for his advice. Typically, the plan participant pays him directly, most often by credit card. "We calculate the fee once a year and take it out monthly," Scott says. Another option is to ask the client to authorize the 401(k) record keeper to pay the fee out of the plan. More than half of his clients use the credit card method, he says. The rest are evenly split between those who ask the record keeper to pay and those who have the fee taken out of other accounts also managed by Scott.
"A key element is knowing every day, for each client, and for every investment we own, precisely how much risk that investment has," he says. "In other words, if all my stop/loss prices were hit at once, I know exactly how much [percentage-wise] your portfolio would go down."
Hewlett Davidson Powell LLC in Birmingham, Ala., came to 401(k) advice through the back door. The firm was formed in 2000 to assist 401(k) plan sponsors, a specialty one of the partners, Cheryl Davidson, developed as the trust officer of a regional bank, and also to provide traditional individual financial advice. When the partners saw the need for individual plan participant advice, they developed it (their site is 401kfocus.com). Partner Kyle Hewlett is responsible for 401(k) advice to participants. After setting up the allocation, he does a 90-day review. Davidson is responsible for working with plan sponsors and partner Jeffery Powell is responsible for wealth management services. "The 401(k) is the only thing growing our practice," Hewlett says.
Like Scott, Hewlett got into technical analysis after the chaotic years of 2000-2001. He hired a programmer who built a system called EZ-Advisor in February 2004. The firm advises on 433 401(k) plans. Hewlett's firm charges 20 basis points across the board for 401(k) advice to participants. It can be paid by either the company or the plan.