Recently my Registered Investment Advisory (RIA) firm has been fortunate to receive a number of Requests For Proposals (RFPs) for investment advisory services. While I am grateful to receive these RFPs, I continue to be puzzled by how some plan sponsors choose to manage their RFP process. So, outlined below, I have provided some tips on how plan sponsors can optimize their 401k RFP process to ensure it produces the best possible result.
Don’t send your 401k RFP to everyone
Although it might seem appealing to send your 401k RFP to every advisor you can think of, that generally is a bad idea. Most advisors will want to know how many other advisors received your 401k RFP. Once I learn that there are 15 advisors competing for your business and that my odds of winning are minuscule, it is unlikely that I will decide to devote the 20 to 40 hours needed to respond to your 401k RFP. Instead, pick 3 to 5 advisors that you would like to do business with and send your 401k RFP to them. This will make your 401k RFP review process much easier, lead to a more focused search and increase the odds that you will end up with the right advisor.
Do everything electronically
Some of the RFPs I receive come through the mail and offer a paper or electronic response option. Your best bet to manage the deluge of information you are about to receive is to do everything electronically. Although you may not be requesting sample performance reports, Investment Policy Statements or contracts, many, if not most of the advisors that will respond to your RFP will provide them. If you offer both paper and electronic response options, many, if not all advisors will respond both electronically and with hard copies (they believe this is a demonstration of thoroughness). You will end up with a stack of paper a foot or two high. I know this from conducting/managing recordkeeper searches for decades. Email out your RFP and require electronic submission of all responses.
Please, email me a Word file
Unfortunately, I rarely receive RFPs in a Word file. A plan sponsor once said to me, “Too bad Bob, I am busy, you will have to retype everything yourself”. That is not a good way to start a mutually respectful relationship. Although I am very thankful to receive your RFP, I am busy too. And given that it is in your best interest to have as many advisors respond to your RFP as possible, why not make it easy for them? True stories, I have had some plan sponsors take points off my submission because I was not able to replicate their logo colors or their formatting correctly on the RFP I retyped and submitted. Make it easy for everyone, email all advisors your RFP in a Word file.
Become a knowledgeable purchaser
Take the time to learn and understand the important decision variables in hiring an investment advisor. For example, RIA firms like mine are currently required to provide a higher standard of fiduciary care to their clients as compared to brokerage firms. This will continue to be true even after the new Department of Labor regulations on fiduciary responsibility go into effect. It is important that you, as the purchaser of these services, at least understand the questions that you should ask to distinguish the difference. You don’t need to completely understand the roles and responsibilities, but you should understand there are differences that can benefit your firm.
Don’t hire the best sales team
Try to avoid hiring the best sales team, rather than the best consultant. There are some super salespeople who are very good at winning business but either not involved in keeping it or not very interested in servicing it. The individual doing most of the talking at your presentation should be your day-to-day contact. Make sure you get to know him/her.
Don’t conduct recordkeeper and investment advisory searches at the same time
Every RFP I have received recently has requested bids on the cost of conducting a recordkeeper search and for ongoing investment advisory services. The RFPs have made it clear that these are two distinct bid requests. Most investment advisors do not charge anything to conduct a recordkeeper search for their clients. But if you request bids for each service separately, you can expect to pay anywhere from $5,000 to $50,000 for a recordkeeper search. Save that money by hiring your investment advisor first and then asking him/her to conduct the recordkeeper search for you.
Please give me time to respond
It took you longer to issue your RFP than you thought it would, right? Now you need to play catch-up in order to get a new advisor in place by your deadline date. The solution? Shorten the amount of time advisors have to respond to your RFP. I just received an RFP that needs to be turned around in two weeks. To increase the odds that you receive as many responses as possible, allow at least a month for advisors to get back to you. Requiring a quick turnaround may appear to be a test of an advisors interest in doing business with you, but it will actually ensure that you receive responses from those advisors who are the least busy. Maybe they aren’t busy for a reason?
Most of the advisors that I respect do not respond to RFPs. They can’t justify the long odds of winning and the 20 to 40 hours it will take to put together a response. Make sure that your RFP process is a success by following these basic tips. There is no advisor that I know of who won’t participate in a highly focused RFP process.
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.