Outside-IN

401(k) plan sponsors are taking RFPs more seriously — advisers should, too

A request for proposal can uncover exactly what fees and services a plan can get in the marketplace

Nov 22, 2017 @ 3:00 am

By Ariana Amplo

For retirement plan sponsors, conducting requests for proposal is a necessary fiduciary practice. The process allows sponsors to solicit bids for various plan services, including those provided by plan advisers. Sponsors are taking the RFP process more seriously than in years past, meaning advisers need to pay attention.

During an RFP, plan-specific details like requested services, current challenges and priorities are shared, and a questionnaire is sent to a select list of prequalified candidates. Candidates then submit their custom proposals to be evaluated in an apples-to-apples fashion.

Typically, in an RFP, six candidates (including the incumbent) are invited. Two to three finalists are advanced to in-person meetings, and one is hired, or rehired. Issuing RFPs is different than benchmarking, and it should be emphasized that these are complimentary, not competing, fiduciary practices.

(More: DOL fiduciary rule limiting DCIO support to plan advisers in unexpected ways)

If it's done well, an RFP should uncover exactly what fees and services a plan can get in the current marketplace. Unlike a general benchmark report, an RFP will allow sponsors to see the exact quality of those services and the experience of the people providing those services, and allow sponsors to hire one of those candidates. While a benchmark report might show fees are on the high end, only an RFP can show if they are justified. High quality versus lower price can usually be compared.

RFP volume is on the rise. According to a new joint survey of asset owners and investment consultants conducted by Cerulli Associates and InHub, a whopping 29% of retirement plan sponsors expect to issue an RFP for an investment consultant in the next 18 months. That's more than the 18% expected for record-keeping services.

Meanwhile, consultants are seeing this, too. Sixty-three percent of investment consultants expect to receive an increased number of RFPs over the next 12 months from plan committees. None anticipate a decrease.

An RFP should occur every three to five years, or sooner if there is a service or fee issue (which plan sponsors detect through regular benchmarking). Advisers may be hesitant to encourage a client to conduct an RFP for their services, for fear of being replaced. But, consider this: The longer it's been since a plan's last formal RFP, the higher the likelihood the result will end in a replacement. Also, if high-quality services are being provided at a reasonable price, this could be a chance to strengthen a relationship and educate a current client about new services.

Time to educate

Further, nonincumbent advisers should not shy away from competing in RFPs. For advisers vying for new business, an RFP is a designated time to educate and pitch plan sponsors on services and process. It can be much more effective than emailing marketing materials every quarter, year after year, in hopes of being hired.

According to the joint Cerulli-InHub survey, 74% of asset owners with an investment consultant have gone more than five years without evaluating their consultant via a formal RFP. It is difficult to argue from a fiduciary standpoint that five years without evaluating a consultant is a reasonable amount of time. However, with technology speeding up a once cumbersome process, the number of RFPs being put on the back burner is declining.

(More: Wells Fargo sued, again, for using in-house funds in 401(k) plan)

The survey, whose respondents' median defined contribution plan size was $53 million, also showed that 75% of plan sponsors are concerned with annual retainer fees paid to investment consultants (with 34% being very concerned); 78% were concerned about obtaining value from investment consultants.

Whether advisers are on the issuing or responding side, using an RFP is a prudent and necessary practice that is finally being embraced.

Ariana Amplo is the founder and CEO of InHub, an online investment RFP management platform.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Mar 26

Conference

Huntington Beach Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Latest news & opinion

Anatomy of an annuity buyout offer

Readers are invited to comment on whether the columnist should keep or ditch her Ohio National VA contract

Factions emerge in OneFPA overhaul

Critics fear the FPA is trying to take money and power from local chapters, which officials and proponents call overblown.

RIA M&A sets another record in 2018

Last year's 181 deals were twice the number recorded five years ago, and the average asset size of the acquisitions was $1.3 billion — 31% larger than in 2017.

6 tech companies heading for IPOs this year

These Silicon Valley technology companies could make an IPO splash in 2019.

Crackdown showdown: Serious cybersecurity enforcement is coming in 2019, but are advisers ready?

When clients ask what advisers are doing to protect their data, only the firms that can give a satisfying answer will build trust with investors.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print