At the recent NAPA 401(k) Summit, a new NAPA/TPSU plan sponsor survey noted that one out of five plan sponsor respondents, and nearly 4 out of 10 (38%) plans with $50 million or more in assets, had found their plan advisor through an RFP. We asked NAPA Net readers to weigh in.
Among this week’s respondents, more than three-in-four (76.9%) have seen an increase in advisor RFPs, and another 15% have seen that increase, albeit only among larger plans.
More than half (53.8%) indicated they had been hired in response to a request for proposal, though another 38.5% said they hadn’t.
Response Refusals
That said, more than two-thirds, nearly 70%, said that they had refused to respond to such an RFP, for a variety of reasons, including these:
- The questions were too invasive and not relevant to services being solicited.
- No control or ability to get to the decision maker, just a mass mailed piece.
- Inappropriate plan size for RFP.
- Either it was totally cold and we didn't know anyone at the organization, or it was not a good fit (e.g. Taft Harley plan).
- You kind of do a cost/benefit analysis on the RFP. How much time and effort is it going to take versus the potential fees and probability of getting the case. If the expected value of the fees (taking into consideration the probability of getting it) is less than cost of preparing the RFP, then you don't do the RFP. I admit it's more a “feel” calculation than actual math.
- The opportunity was outside that of the firm's target market.
- No chance they were leaving existing advisor.
- Too poorly written; not advisor focused.
- The requesting company is usually trying to benchmark their current fees and not looking to make a change in provider.
- The RFPs are usually “off the shelf” and not customized to provide meaning information.
- They take hours to complete and are generally a waste of time.
Another reader explained, “Unless we have personal contact with the client, they're not going to hire us based on information in an RFP.”
Those concerns notwithstanding (or perhaps because of those concerns), nearly half (46.2%) of this week’s respondents say they have developed an advisor RFP to use as a prospecting tool.
Best Questions
Several readers offered up what they considered to be a great question to include on those RFPs, including:
- Do you have a succession plan? A lot of advisors do not have one and if they leave or die their book gets split up over several advisors whether or not they have retirement plan experience.
- What makes you different than other advisors?
- What documentation can you provide with respect to plan sponsor and participant outcomes?
- Please list your team members assigned to our account along with their experience and responsibility to our plan.
- Why did you become, and continue to be a 401(k) advisor?
- How do you determine the correct share class to use and what are your thoughts regarding revenue sharing?
One reader commented, “I don't think a single question makes a difference, what works is the methodical approach of service supply chain purchasing protocols to address due diligence, thus removing the intangible aspects and makes the hiring more defensible in court. This not only provides plan sponsors with excellent DD should they ever be sued, but it also places the advisor/firm that handles RFPs this way in a significant advantage to advisors that just rely on word of mouth and/or status.”
Other Comments
We also received a number of additional reader comments on the subject, including these:
- RFPs that go through a professional purchasing service/supply chain methodology built around quantitative and qualitative criteria help mitigate the information gap and vendor advantage, particularly for smaller plans. We have seen a rise in purchasing professionals being delegated the initial aspects of the RFP to help remove the relationship disadvantage, particularly with existing service provider reviews. Firms that can detail their services and prove not only compliance but service delivery mechanisms as well seem to be winning the day. The DOL (government agencies) and corporations clearly understanding purchasing protocols in most aspects of their company. Using these same methods would help reduce the industry chatter and elevate those firms that approach RFPs and service delivery in this manner.
- As with so many other “tools” in our industry, there is no standard. If a plan is looking for an independent advisor, as they should be, then the questions should pertain to the advisor skills, industry experience and knowledge, not questions about recordkeeping, TPA services, etc.
- One upsetting item with many RFPs are the organizations that know who their advisor (Two-Plan Tony, golf buddy or board member) will be going in, yet take all the great ideas from 401k pros and give them to him or her to use.
- Never got a case from one — it appears someone already has the inside track, but they are sending the RFP to make it look like they are doing a lot of due diligence.
- I feel that most RFPs miss the real questions/solutions that retirement plans answer/solve.
- An RFP service can help a company weed out advisors who are not retirement plan advisors, help the plan sponsor ask the right questions and help speed up the process for advisors to get hired. I get a lot of referrals from advisors who have been stuck with a group who needs to do an RFP but doesn't have the time, resources or expertise to do it.
Thanks to everyone who participated in our weekly NAPA Net reader poll!
