Ask any plan advisor if they think plan sponsors should conduct a formal, periodic benchmarking or RFP for their record keeping services and investments, and you get the same answer: Not only is it important, it’s required by law. When it comes to advisory services for prospects, you get the same response. But then ask if they think that their clients should conduct an advisor RFP and you get an entirely different answer from most plan advisors.
It’s easy to understand how self-interest would make advisors reluctant to suggest that their clients go to market to make sure that their fees are reasonable given the services provided, but it’s hard to justify. Some advisors argue that because they are so experienced and doing such a great job, there is no need for clients to go to market. Sounds kind of hollow, right?
So assuming that you agree that all DC plan sponsors should benchmark all services, including advisory services (I would love to hear arguments on why not), advisors that get ahead of this growing trend will be in a better position. I heard about a well-known and high-level advisor in Boston who actually requires his clients to go to market every three to five years. That shows real confidence.
The advisor who suggests an RFP process will not be blindsided if another advisor or RFP consultant initiates it, and the incumbent might have more input into the process. Remember, the best way to win an RFP is to help create it. Though a bit conflicted, an advisor might actually be able to assist their client in the RFP or benchmarking process when reviewing other advisors.
So should you initiate advisor RFPs or benchmarking for clients? Unless you have some novel reason why advisory services should not be periodically and objectively reviewed under 408(b)(2) or 404(a)(5), then getting ahead of the process and even being part of the preparation might make sense. Or you can wait for someone else to initiate the process — raising the obvious question of why the incumbent advisor had not suggested it in the first place.
