RFPs, or requests for proposal, have long been valued tools in advisor arsenals. There are, however, varying opinions as to what they should include, and even how often they should be issued – and you need look no further than this week’s reader poll to see just how varied.
Nearly two-thirds of this week’s respondents (63%) said they generally recommend a formal RFP be prepared every 3-5 years. That said, 18% were in the “at least once every 7 years” category. The rest split between every 3 years, every other year, and some were in an “other” category.
“Unless service from the vendor is inconsistent and frustrating for the employer,” clarified one reader. “We only recommend recordkeeper RFP if the client is paying excessive fees for services provide or if they have ongoing service issues that we cannot resolve,” explained another. “Every 3-4 years. More often if the plan has over $20M in annual flows,” said another.
“In my opinion an RFP should be conducted if a plan fiduciary report shows divergence from industry averages or when the service providers don’t meet customer service expectations. When compared with today’s third-party benchmarking services, I believe RFPs are an expensive and time consuming exercise unless there are indications that the plan falls outside of acceptable pricing or service parameters.” Perhaps echoing that sentiment, another reader noted, “We actually do more RFI's than formal RFPs.”
‘Recommend’ Actions
As for how often their plan sponsor clients actually did an RFP, about half (46%) said they did every 3 to 5 years, a quarter said about every 7 years, and 15% noted that they “used other methods to evaluate/benchmark. Every other year was cited by about 3%, but the rest split between “rarely” and “not often enough.”
Those frequencies were pretty consistent with 2 years ago. Just over 4 in 10 (44%) said they were doing RFPs about the same frequency as 2 years ago, though a quarter said they were doing them more often, and nearly as many (23%) said they were doing fewer RFPs, but other evaluation methods more. The rest? Less frequent RFPs.
If the frequency was consistent, about a third (36%) said they were mostly shorter, though once again a quarter (26%) said they were about the same length, and just 1 in 10 noted that RFPs were “mostly longer.” The rest – just over a quarter (26%) – said that it really depended on the individual situation.
Why?
Speaking of which, we also asked NAPA-Net readers why their plan sponsor clients did RFPs. A clear plurality (44%) acknowledged it was for “a whole variety of reasons,” though just about as many (36%) acknowledged that it was because they (the survey respondent) recommended it. One in 20 (5%) said it was “because they think they have to,” and about 3% said it was because they were concerned about litigation.
“The most common reason they move forward with an RFP is because their current plan providers are not meeting value expectations for what they are charging for their services. This could be on the TPA side, custodial side, or the advisor side; each plan is different,” noted one reader.
“Some clients believe they need to conduct an RFP or more commonly we recommend recordkeeper RFP due to service or fee issues,” explained one. “Because something changes with the service,” said another. “I advise my clients to perform this every 3-4 years to meet their ‘Periodic Service Provider Review’ per the DOL. My clients want to meet their fiduciary responsibilities and stay off the DOL and other regulators radars,” noted another reader. “Usually the RFP is conducted after I have completed a plan benchmarking analysis using a third-party tool,” explained another reader.
Dumb Questions?
We asked for the stupidest question they had seen on an RFP – and while everyone wasn’t able to draw one to mind, here’s a sampling:
“Describe what your firm does?”
“Don't get me started. The most annoying is when you get the same question asked three to five times in the same RFP, because it's a compilation of different RFPs, and nobody edited it correctly. Or when a vendor provides the same lengthy and slightly off-base response to a series of our RFP questions intended to solicit deeper insight into vendor capabilities. We then need to use our judgment to extract what we hoped to learn.”
“If we go with you, what are your investment returns?”
“Too many to choose from. bottom line, sponsors don't know what they're talking about or asking. Generally pull a generic RFP off the web or from a fellow business owner and don’t know what they are asking or why they are asking it. It’s a façade.”
“Any direct question about a particular service offering. If the plan sponsor asks for a particular service, they respondent is going to say yes even if they do not perform the service. Ask vague questions. This is the advisor’s opportunity to share ALL they can do for plan sponsors and their employees. They will share the service you're looking for if they offer it!”
“Requests for references for plans we have lost.”
Reader Comments
As usual, we got a number of comments from readers. Here’s a sample:
“I think that RFPs for major providers is just plain stupid. Top 10 RKs I find to have most of the same services.”
“As an investment Advisor prospecting for new clients, we are frustrated since new leads we generated often turn into an RFP which includes low cost brokers.”
“More clients should simply use the RFI as a benchmarking project if there are no service issues.”
“My role is to serve the client, and part of that is keeping a keen eye on all top-tier providers, how they price, what new services are offered, and keeping clients informed of this. If there is a new idea or service that the client needs/wants, we go to the current provider first and simply ask… most requests are granted with minimal fuss. The client is brought current, without having to take on the task of changing providers. By being the client’s eyes and ears on the street, I am in a position to help them know what is out there, and how their provider stacks up on a continual basis. Most of my clients have been with me 15-20 years, and at most, we have averaged one full change per client, so I am not in the RFP every 3-5 year camp; constant benchmarking is the best answer.”
“I think many plan sponsors (especially small to mid-market) still lack the basic understanding of who the vendors are that serve their plan and what each does. We always recommend the plan sponsor hire a competent advisor or consultant first, and then work with that professional to screen and select the other appropriate vendors.”
“RFPs from outsiders that have no interest in bringing you their business are time consuming and a complete waste – get a provider that will show you benchmarks and don't waste other people’s time! I don’t think our firm gathers data and generates RFPs anymore unless we're in the running for the business.”
“The record-keeper RFP ‘game’ is one of the biggest problems created for plan sponsors. Advisors frequently do them to add perceived value while rarely recommended that their own services go to RFP. Sponsors should certainly benchmark fees and services periodically, but the myth fostered by the industry that they need to run full RFPs and, even move record-keepers, every 3-5 years is a disservice. Sponsors feel unnecessary angst and go through unnecessary conversion.”
“Terrible experience with asking recordkeepers for help with RFPs. They lose more business then gain it. If they were so great they’d be an advisor.”
“If a plan sponsor is very satisfied with their plan providers, they do not necessarily need to go through the time and expense associated with an RFP every three to five years. It is recommended that they instead benchmark their plan over the same time period. RFIs are another option for these plan sponsors. Plan sponsors should do RFPs over that time frame if they are not satisfied with their plan providers or unsure of how their plan stacks up.”
“We do more benchmarking requests than full/formal RFPs. I think full RFPs really see action in the $250M and up marketplace. In the $100M and below, it’s used more to benchmark fees and potentially look to reduce current pricing or increase services offered. With the consolidation of recordkeepers, you wonder how this will change over the next few years.”
“Plan sponsors should hire an independent, 3rd party to perform their RFP. Someone who is not tied to an advisor firm, broker dealer, TPA, attorney, RK, etc. ensuring they will receive true unbiased, conflict free information. A 3rd party also can organize the information in an apples to apples comparison format and not ‘spreadsheet’ the proposals. This will give the advisor a fair chance as well.”
“I believe that going through an RFP process on a regular schedule is an outdated method of monitoring service providers. I believe the third-party benchmarking services that we have access to now give us a way to monitor performance, fees, and service levels to an extent that we can use the RFP process mainly as indicated by our ongoing monitoring.”
“Less is more, focus on the issues.”
“I think a lot of the information requested and provided is unnecessary. The software options provide a level of information that no committee could truly evaluate. It’s just too much data. The RFPs should generally be streamlined.”
Thanks to everyone who participated in our weekly NAPA-Net Reader Poll!
