When someone says Request for Proposal (RFP), what thoughts come to mind?
A disruption? A one-off project? At Cerity Partners, we think of it as a basic fiduciary duty.
Sponsors can use an RFP to benchmark the overall competitiveness of their primary service providers – recordkeepers and advisors – in terms of both their fees and services. For plan sponsors that haven’t completed an RFP in the past five years, it’s almost certainly prudent to do so. In fact, the Department of Labor expects plan sponsors to solicit RFPs for service providers every three to five years as part of their ongoing fiduciary duty to monitor their plans’ fees. The industry is changing so quickly, that there will almost certainly be opportunities to improve services or lower fees. Plan sponsors can get a “price check” on the marketplace, make sure their vendor’s offerings are competitive, and just as importantly, deliver on the promise to take fiduciary responsibilities seriously.
For those organizations who wish to manage the process internally, things may superficially appear very straight-forward. Start with a solid RFP questionnaire and then spend some time reviewing it and customizing it so it makes sense for your organization. Not all answers are equally important so think in advance of how you want to weigh the responses. Perhaps employee financial education or the participant user experience are important criteria. Maybe it’s fees, compliance support, or cybersecurity. Whatever is most important to you, make sure to rank those answers higher.
That said, the reality of the undertaking can be quite different than the perception going in, as issuing, analyzing, and taking action via an RFP are significant and stressful undertakings. The RFP process itself can take several months to complete. This is why we often recommend that clients outsource their RFP processes. You can ask your current advisor to conduct one or, if that is not an option, there are firms that can manage the process on a project basis. Not only does this save time, but Plan Sponsors gain from their experience of having designed, managed, and analyzed many prior RFP processes.
Regardless of who conducts the RFP, there are several common pitfalls to keep in mind. The first one is not clearly identifying the project’s overall goals. Why are you conducting the RFP? What areas of your plan need the most help? Are there specific areas of interest that are unique to the situation, such as employee financial education, basic recordkeeping and administration, cybersecurity? Defining one’s goals is essential to running a successful RFP.
The second big pitfall is not identifying the recordkeepers who will best fit the situation. Plans grow and change over time. Recordkeepers who may have been a good fit when they were selected may not be a good fit today. Also, certain recordkeepers specialize in plans of certain sizes (e.g., under $10m, etc.). It’s important to select service providers who can not only make the plan better today but will grow with the plan over time.
The third common mistake is oversimplifying the buying decision to cost rather than value. As you go through the process, you’ll find that the top-tier recordkeeping companies sound increasingly indistinguishable. They have similar client service delivery models, similar participant websites, and so on. The devil, though, is in the details. Pricing can help narrow the list of semi-finalists, but it’s just as important to consider culture and fit. The lowest-cost provider is not necessarily the best provider for your plan.
Many companies put RFPs on the back burner during the pandemic, and given the disruption, it made sense. But now that things are slowly getting back to normal, it’s time to get RFP projects off the ground. In our experience at Cerity Partners, the majority of RFPs usually lead to better services and lower fees. And even when it doesn’t, it’s important from a fiduciary perspective to ensure that fees and services are reasonable relative to a marketplace standard.
We know starting an RFP can be overwhelming, and we’re here to help make this process organized and easy. We’ll help you focus on the most important issues to you and find the best recordkeeper fit for your organization. To learn more about how outsourcing this critical fiduciary duty can help you save time and money, please contact us – we’re here to help.
Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security. For information pertaining to the registration status of Cerity Partners, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). For additional information about Cerity Partners, including fees and services, send for our disclosure statement as set forth on Form CRS and ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.