Should all DC plans of a certain size go through an advisor RFP process periodically? Or can they just rely on benchmarking using industry averages or databases?
Ask most advisors and the answer might differ depending on whether it relates to their clients or not. So what’s the right answer?
If you assume that benchmarking and active RFPs are the same, ending with similar results, then it might not be worth the time and money to go through an RFP. Usually, the incumbent plan advisor will be conducting the benchmarking, and even if they report the results accurately, sometimes the questions asked are more important than the answers given. For example, if employee education and advice is a core strength of the incumbent advisor, they will invariably include and highlight that service. If those services are not a core competency, they might not be included.
According to Ariana Amplo, Co-Founder of Inhub, “When you benchmark a plan, you are getting an idea of fees and service vs the market. This is hugely valuable and should be done regularly.” Amplo notes, however, “You don’t truly know the quality of those services being included in the benchmark report.”
The DOL suggests that DC plan sponsors “go to market” periodically. The DOL’s website explains:
The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.
Most importantly, through an RFP, plan sponsors not only get a chance to speak with other advisors and get their perspectives on how they can help companies manage their retirement plan, the RFP engages the plan sponsor in the process — beginning with what is important to them when selecting or using a plan advisor. Engagement in their retirement plan by plan sponsors is key to a successful plan, and selecting the right plan advisor is arguably the most important decision they will make.
So while benchmarking plan advisors is very valuable and should be done regularly (at least annually), eschewing the RFP process (which should be conducted every three to five years) is a missed opportunity to engage plan sponsors in their retirement plan. It’s the difference between reading the box score and going to the game.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
