As plan sponsors better understand the role of the RPA and how they can best leverage it, there will be more formal RFPs. In fact, in a recent LinkedIn poll, 81% thought that plans should conduct an RPA RFP 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 fiduciaries must ensure that fees paid to all vendors outside the plan are reasonable given the scope and quality of the services—the cheapest is not required. ERISA requires a periodically documented due diligence process by a prudent expert for all plan aspects.
Advisors are invited to an RFP based on reputation or if there is a prior relationship. They get to the finals based on capabilities through the RFP and they win based on relationship or cultural fit.
Here are a few tips to be successful in the process:
- Old-school marketing and cold calling getting in front of a plan sponsor can give an advisor an advantage, especially to be included in the process. Though advisors would prefer to close a prospect without going through an RFP, that process may 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 timely and do not contact the plan sponsor directly unless approved.
- Research the plan to better understand their company culture and plan along with their current RPA. If possible, try to determine who is the decision maker and which department is taking the lead.
- Along with answering RFP questions, be sure to submit a customized proposal with your own look and feel. Focus especially on the key areas as weighted by the plan sponsor.
- Many RFPs do not allow advisors to speak with the plan sponsor until the finals, so the goal should be to get to the finals.
- At finalists’ meetings, include the people who will be working on the plan, especially the key customer service and participant engagement staff—bring the people who work on the areas of key concern.
- Diversity is critical at the finals meeting—the lead advisor should open focused on an overview of the firm and how they fit with the plan sponsor but should not dominate the conversation. Diverse age, gender and ethnicity are critical especially those that align with the plan sponsor personnel at 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 one-on-one and group meetings.
- Be upfront about additional compensation received from services like managed accounts or proprietary products—a savvy RFP consultant will sniff that out, and it could hurt the advisor if not transparent.
While it helps to be local, plan sponsors are more comfortable with remote service. If in-person meetings are required, make sure to figure travel costs into the fee or spell out additional costs.
A deep understanding of the plan’s record keeper is critical, especially if the plan’s previous provider was acquired, detailing how many plans the provider has and what type of leverage the advisor has with them.
Everyone does fees, funds and fiduciary. Try to think of unique aspects like the use of CITs to lower fees or access to target date fund portfolio managers.
RPAs are going through a dramatic transformation not just to garner 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 the high earners.
Some advisors and industry professionals think their current advisors can benchmark the advisory fees and services themselves. Would any advisor allow a record keeper to benchmark themselves where there is the opportunity to skew results based on the data used? Benchmarking details what advisors and providers have charged in the past, whereas RFPs give real-time pricing for that plan now, which will continue to decline if there is excess capacity. Fees and services are changing—the RFP gives a plan the opportunity to reflect on what other services they may want while getting fresh perspectives from other advisors.
Some might think all 401(k) or 403(b) plans over $10 million already have a good advisor and that the RFP process is just for show. Actually, there are many pretenders still out there based on prior relationships and neglect—advisor consolidation can change the advisor’s service model and fees post-acquisition, especially if there are staff changes immediately or eventually.
Just as record keepers complained and asked why advisors were forcing their clients to conduct RFPs decades ago, advisors might be thinking the same. But as plan sponsors wake up with convergence, consolidation and technology dramatically transforming DC plans, not conducting periodic RPA RFPs might be considered negligent.
The question about plans is not what aspects of the plan an advisor should oversee. The question is what parts they should not be involved with, and there is only one valid answer—conducting due diligence on themselves.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
