The first time I heard the word Schnorrer, I was 7 years old and my parents took me to a trip to Mystic, Connecticut. During those days, the Connecticut Turnpike had eight toll booths from Greenwich to Mystic. It felt that every 10 miles, some toll collector was looking for a quarter. So my mother said, Connecticut is a bunch of schnorrers.
Schnorrer is a Yiddish term meaning “beggar” or “sponger”. The English usage of the word denotes a sly chiseler who will get money out of another any way he can, often through an air of entitlement. For me, a Schnorrer is essentially a cheapskate.
When it comes to retirement plans, a retirement plan sponsor or a retirement plan providers shouldn’t be a schnorrer.
A retirement plan sponsor who is a schnorrer is one who selects the lowest cost third party administration (TPA) like a payroll provider and doesn’t care that the administration of their plan is done properly or not. Plan costs should always be a consideration, but so should proper administration is a greater consideration.
For retirement plan providers who are schnorrers, I can remember my old TPA. As a producing TPA with its own RIA practice, we had clients around the country. We did charge a hefty RIA fee and then the managing director of the Firm who ran the day to day operation (the biggest schnorrer I ever met) started charging for travel expenses for our client relationship managers to visit clients in assisting them with the fiduciary process. That went over like a led zeppelin. I worked for a law firm partner who had clients around the country and he was insistent that he would never charge his clients for his travel time because he felt that the client would simply want to hire counsel than was more local than to pay him for traveling.
When I left the TPA in 2007, I was replaced by 2 attorneys and a paralegal. Like Lou in Caddyshack who had to raise the price of Coke because he was losing at the track, my old TPA had to raise plan document fees because they were losing money by hiring this larger staff to replace me. Plan document fees went up by 25% and they started charging $150 for annual safe harbor notices. $150 to simply search and replace the year in a Word document for $150, this chiseling offended many clients.
Clients don’t want to be chiseled. They would rather play a higher flat fee that getting inundated by petty charges.
One of the things I hated most about law firms was their chiseling of clients. It was enough that clients were charged by the hour, which only led to possible abuses of overbilling because law firms stress billable hours more than quality of service. So it’s not enough to overcharge clients for legal services, but the law firms that I was associated with also charged clients for typical office charges like FedEx or copies. When I buy a bagel with olive cream cheese at my favorite bagel store, do they charge me for napkins or a plastic knife? There is a cost for any business to do business, but does a law firm have to pass every nickel in costs to their client.
That is why my practice uses a flat fee; clients should have a fee that they have cost certainty over and with the knowledge that I am not chiseling them. When I drafted a plan document for a client yesterday for $2,000, I didn’t charge them the $8 to mail the plans or the $18 to bind the plans at Staples (my clients would tell me not to be schnorrer and buy a binding machine).
Every retirement plan provider needs to be fully compensated for the work they do. There are costs involved in doing business, but clients don’t need to see every charge added and itemized because you don’t want to be labeled a schnorrer.