For example, assume an employer is looking to sponsor a group retirement plan. This enables the plan's assets to pay a large percentage of total fees. Vendors use sophisticated pricing models to estimate future cash flows into their product to arrive at their price quote. Many vendors will even price their program knowing it will lose money in the first year. This is because they know that in later years, profits will soar if cash flow is strong.
All vendors benefit tremendously from asset-based pricing.
This is because with asset-based pricing, most fee deductions occur before investment performance is reported to participants. By linking total revenues to a percent of assets, a vendor's revenues automatically increase with participant contributions and market appreciation.