As plan sponsors better understand the role of the RPSH and how they can best use it, there will be more formal RFPs. Actually, in one recent LinkedIn survey81% thought plans should conduct an RPA CPA using an independent consultant every five to seven years. So another skill set that successful RPAs have developed is participating in and winning RFPs.
Plan trustees must ensure that the fees paid to all non-plan vendors are reasonable given the scope and quality of services – the cheapest is not required. ERISA requires a periodically documented due diligence process by a prudent practitioner for all aspects of the plan.
Consultants are invited to an RFP based on reputation or if there is a previous relationship. They make finalists based on skills through the RFP and win based on relationship or cultural fit.
Here are some tips to be successful in this process:
- Old-school marketing and cold calling going head-to-head with a plan sponsor can give an advisor an edge, especially getting involved in the process. Although advisors would prefer to close a prospect without going through an RFP, that process can help plans take action, especially if guided by an independent expert, making them more confident in their decision-making.
- Respect the process and the consultant conducting the RFP – be on time and do not contact the plan sponsor directly if it is not approved.
- Research the plan to better understand their company culture and plan together with their current RPA. If possible, try to determine who is the decision maker and which department is taking the lead.
- Along with answering the RFP questions, be sure to submit a personalized proposal with your own look and feel. Focus specifically on key areas weighted by the plan sponsor.
- Many RFPs don't allow advisors to talk to the plan sponsor until final, so getting to final should be the goal.
- In finalist meetings, include the people who will work on the plan, especially key customer service and participant engagement staff—bring in people who work on key areas of concern.
- Diversity is critical in the final meeting—the lead counsel should open focused on an overview of the firm and how they fit with the plan sponsor, but should not dominate the conversation. Different age, gender, and ethnicity are critical especially those that match the plan sponsor's personnel in the meeting.
- Compensation is moving to a flat fee plus fees for additional services – be transparent about all services not included in the flat fee, especially the cost of individual and group meetings.
- Be upfront about additional compensation received from services like managed accounts or proprietary products—a savvy RFP consultant will sniff this out and can hurt the consultant if it's not transparent.
While it helps to be local, plan sponsors are more comfortable with remote service. If personal meetings are required, be sure to factor travel costs into the fee or outline additional costs.
A deep understanding of the plan record keeper is critical, especially if the previous plan provider has been acquired, detailing how many plans the provider has and what kind of leverage the advisor has with them.
All do fees, funds and trust. Try to think of unique aspects like using CITs to lower fees or access to portfolio managers of target date funds.
RPAs are undergoing a dramatic transformation not only to collect additional revenue from participant services, but also because plan sponsors want advisors to help and work with employees not just for retirement and not just high earners.
Some advisors and industry professionals feel that their current advisors can compare advisory fees and services themselves. Would any advisor allow a record holder to rate themselves where there is an opportunity to override the results based on the data used? Benchmarking details what consultants and providers have charged in the past, while RFPs provide real-time pricing for that plan now, which will continue to drop if there is excess capacity. Fees and services are changing – the RFP gives a plan the opportunity to reflect on what other services they might want by getting fresh perspectives from other advisors.
Some may think that all 401(k) or 403(b) plans over $10 million already have a good advisor and that the RFP process is just for show. In fact, there are many claimants still out there based on prior relationships and negligence—advisor consolidation can change the advisor's service model and post-acquisition fees, especially if there are staffing changes immediately or eventually.
Just as record keepers complained and asked why advisors were forcing their clients to do RFPs decades ago, advisors may be thinking the same thing. But as plan sponsors wake up to convergence, consolidation and technology dramatically transforming DC plans, not conducting periodic RPA RFPs can be considered negligence.
The question about plans is not what aspects of the plan an advisor should oversee. The question is which parts should not be involved, and there is only one valid answer – performing proper care for themselves.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.