Miller says his competition is mainly regional variations of his own firm: He names SageView Advisory Group in Irvine, Calif.; Fiduciary Investment Advisors in Windsor, Conn.; Sheridan Road in Chicago; the Lockton Group in Kansas; and Morgan Stanley’s Graystone Consulting. And whenever there’s an RFP, “there’s always a local shop in the running,” Miller says. He doesn’t see tech platforms like Financial Engines as a direct competitor, but a firm in the managed account 401(k) space that it might recommend.

Whaddaya Charge?

In the beginning, Miller says Captrust “would charge maybe 50 annual basis points on a $5 million plan, which would be about $25,000.” Today the fees are less asset-based relationships. “They are more fixed fee. So instead of saying you’re going to get 25 basis points or 10 basis points on a certain pool of assets, they may say we’re going to pay you a $60,000 annual retainer fee.”

“We charge from $25,000 to pushing a million depending on what we’re doing and who we’re doing it for,” Miller adds. Most of the plans are under $1 billion, he says.

“Our recommendation is to have between 15 and 18 different funds [from a record-keeper like Fidelity] that all have different risk/return; they’re not duplicate,” he says. “And we also, if the participant wants to go into a brokerage account and do their own thing, we offer a window for that.”

The firm vets the funds and monitors them to make sure they remain competitive. “When we’re working with the plan sponsor, we’re developing the menu of options. And then when we work with the participant, we say … you’re 55 years old, you’re going to work 10 more years, you want to have this much money in retirement. This is how much Social Security you’re going to get, here’s your outside assets, based on all this and your risk tolerance, we want you to put 25% of your money in Fund A and 12% of your money in Fund D and so forth.”

The space has become fairly complex and less accommodating to smaller firms like his was 20 years ago, says Miller. Compliance and litigation have made plan sponsors bright targets for lawsuits—large companies like Fujitsu Technology and Philips North America have grabbed unwanted headlines settling lawsuits for fiduciary breach obligations (settlements in the $15 million area) because their plans were accused of having excessively high fees or so-so performance. That’s frightened the ghost out of smaller companies. “The more litigation that you see out there, it plays to the strongest hands, the retirement advisors that have the biggest businesses,” Miller says. (The Department of Labor’s 2011 rules on participant-level fee disclosures also changed the landscape.)

Small advisors still smell opportunity here—after all, 401(k) money comes in every month, and there’s nothing like a constant money drip of basis points you can count on. TD Ameritrade said last year that advisors on its platform were still excited about its 401(k) program. But the consolidation in this business is going to make it harder for small RIAs, or “Two-Plan Tonys,” to serve this market unless the plans are really small. And if a plan tips over $5 million or more in assets, the bigger players will smell blood and come after, Miller says. “The barrier to entry has been going up pretty substantially easily in the last 10 years. It’s getting harder and harder every year to hang your shingle and do this.”

A wave of lawsuits has also caused many plans to focus more on plain vanilla, passive funds and no exotic instruments, and that’s put pressure on fees. But Miller says his problem is not fee compression so much as it is the margin compression—costs have gone up as institutional clients require more services. For every dollar of revenue, he says, 65 cents goes to compensation and benefits for employees, 20 cents is profit, and 15 cents is everything else—technology, rent, marketing, etc. Captrust spent $1.5 million last year upgrading its CRM. “A small company can’t do that,” he says. The firm has also built a tablet technology it uses in the field with participants during educational conferences at offices and plants.

One of the things you have to do for compliance, he says, is document everything, so that you can prove you’ve done things if you’re dragged into court. The firms that get into trouble are those that do the work but don’t document it and have no paper trail.