Best in Show

A mere three years ago, to get selected as an adviser by small or mid-sized plans, Sheridan Road Advisors typically did not go through a formal request for proposals (RFP) process. Today, the prospecting process for Sheridan Road and other advisers has become well-documented and far more disciplined.

“The amount of adviser RFPs that we’ve had an opportunity to participate in has probably doubled in each of the past three years,” says Jim O’Shaughnessy, a Sheridan Road managing partner in Northbrook, Illinois.

In 2010, Sheridan Road responded to a half-dozen RFPs, and, this year, O’Shaughnessy estimates that number will grow to between 30 and 40. “Where it used to be maybe only at $100 million-plus plans, it is rare now if $50 million plans do not have a formal RFP process,” he says. “We recently saw a formal RFP for a
$3 million plan.”

A couple of factors have caused the adviser-hiring process to become more official. Tight budgets at many employers have prompted a more stringent purchase process. “The procurement mentality has started to seep into the 401(k) process,” says Tim Black, director of the retirement plan consulting division at advisory firm NFP Corporate Services in Boston. “More organizations are saying, ‘If we buy everything else through a procurement process, why not procure an adviser that way?’”

And the new fee-disclosure rules have led more sponsors to realize their need to ensure the reasonableness of advisers’ fees, O’Shaughnessy says, which leads many to perform an RFP as a benchmark. “Plan sponsors have a better understanding that it is part of their fiduciary duty,” he says, “and, if they do hire an adviser, the adviser has to be benchmarked.”

Several advisers offered tips on how to craft an RFP response that will resonate with sponsors—and most likely win new business:

1) Find prime prospects. Advisers do not need to wait for a sponsor to contact them with an RFP, Black says. Proactively look for plans that might be ready for an adviser change, contact them, and meet with them in person first. “A plan sponsor may invite us in to talk, and we help educate them on some of the issues we consider important for that plan,” he says, adding that these issues often subsequently get incorporated into the sponsor’s RFP.

Adviser Brian Dillon directs these meetings to help educate a sponsor on its fiduciary responsibilities—and how he might help. “I do not find that plan sponsors are aware of their needs, for the most part,” says Dillon, president of Positive Retirement Outcomes LLC in Medfield, Massachusetts. “I go in and tell them why they need someone like me.” 

Dillon often gets potential client leads from 5500 forms. He analyzes the cost and performance of the funds as well as recordkeeper and broker costs. When he talks with sponsors, he discusses how new fee-disclosure regulations mean that sponsors need to not only understand plan fees but also determine their reasonableness. “I know if the fees are reasonable, to a certain extent; I do not know all the services provided. If they are not reasonable, I can say, ‘Hey, you need to benchmark your fees. You have got all retail share classes in a $10 million plan. You clearly are not getting value for the amount you are paying.’”  

2) Invest time in your response. 401(k) Advisors Intermountain LLC does not respond to all the RFPs it gets but first weighs the time commitment involved and the probability that the sponsor actually will hire a new adviser. “That’s something advisers should focus on, because there are so many ‘cannon fodder’ RFPs out there now, especially with government and public entities with a strict procurement policy,” says Brady Dall, the company’s Salt Lake City-based senior vice president of client relations. Sponsors do these cannon fodder RFPs mostly to benchmark and confirm the fee reasonableness of their current adviser, he says, rather than because they seriously intend to switch.

Before they decide whether or not to complete the RFP, Dall and his colleagues often will have one or more phone conversations with the sponsor contact identified on the document. “It allows us to uncover if this is a futile RFP, or if they are truly looking for someone who is a good fit,” he says. “Second, it allows us to uncover what we should focus on in responding to the RFP and what their hot buttons are.”

Once you decide to respond, take the time to do it right. Asked about the biggest mistake advisers make during the process, several sources mentioned spending too little time on the response and using too many generic answers to questions. “For an adviser, it’s really just that [he has] to put the effort into it,” O’Shaughnessy says. “[He has] to think about RFPs as a growing, major component of having a growing, viable practice. It’s the first part of trying to build a relationship with that sponsor.”

In building its advisory practice, Sheridan Road has made sure to strengthen its ability to respond to RFPs. “It’s a team effort, and in most cases we have five or more members of our team responding to an RFP,” O’Shaughnessy says. This includes all of the client’s potential touch-points within the organization: Sheridan Road’s investment chief, marketing director, relationship-management staffer, lead adviser and business and strategic development executive.

3) Get specific about fees and value. Fees are in the spotlight these days, but a sponsor need not pick the least-expensive adviser. “It’s all about reasonableness of fees,” says Rick Reed, Boston-based managing director of retirement services at Marsh & McLennan Agency. “It comes down to benchmarking.” So the firm will disclose proactively in RFPs that it utilizes the fee-benchmarking services of both Fiduciary Benchmarks Inc. (FBi) and Ann Schleck & Co. LLC to ensure its fee reasonableness with regard to quality of service.

Fiduciary Benchmarks reports allow Dall and his colleagues to analyze a plan’s current fees and investment lineup for prospective clients. “We typically will reference the report in the proposal but promise them a full presentation on the report if we get to the finalist meeting,” he says. For advisers in competition for new business, “promises of employee education and the quarterly meeting are very generic,” he says. “This is specific to their plan and what’s going on. Oftentimes, the person doing the RFP wants to bring the data to [his] boss, and it makes [him] look good with [his] boss.” That often helps to start building a rapport with the key RFP contact, he says.

Proactively offer specifics on value provided for fees. NFP Corporate Services tries to break its services into separate parts in the response, Black says. If the firm bids to do investment consulting for a plan, for instance, it will specify in the RFP how often it will do things such as on-site investment committee meetings. Even if the RFP is short on specific questions tailored to that plan’s needs, he says, “We try to be as granular as possible.”

4) Demonstrate that services match the plan’s needs. Plan sponsors that perform an RFP and hire an adviser want to have documentation that they made the right fiduciary decision. “A lot of them are looking for a way to support their decision to hire an adviser,” notes adviser Carmela Elco, president of RESOURCES for Retirement in Yardley, Pennsylvania.

Says Reed, “They’re putting out the RFP to get clarity, and we want to respond with clarity.” Including actual examples of work done for clients that have comparable issues can help considerably. “We’ll say, ‘For this organization that is similar and has similar needs, we implemented A, B, C and D. B, C and D worked, and A did not,’” Reed says. “People want examples. People want validation. People want to know what has worked and what has not. They want to know, ‘What do we need to do to make it work for us?’”

Dall shares that philosophy. “We’ll include a case study that relates to the needs of that prospect—of a current client that has similar needs that we have gone above and beyond to meet,” he says. Such examples will pinpoint one area where 401(k) Advisors Intermountain helped a sponsor—such as in adopting prudent governance processes or boosting participation—rather than try to describe all the ways it improved that plan. Keep the case study to one page, maximum, he suggests, since people looking at RFPs already have so much to read.

5) Establish the cultural and personality fit. This means researching the potential client’s plan needs and its business ideology, Dall says. Read the CEO’s blog, he suggests, and then weave that culture into the RFP response, such as by referring to the employer’s commitment to community involvement. “It’s really those personal tidbits that help you win the business,” he says. “Everything else sort of blends in if you go through four, five or six RFPs.”

Research has been done on why advisers get hired, says Elco. “A lot of it comes down to the ‘fit’—the personality fit, the culture fit and the ease of working with that person,” she says. “You must differentiate yourself.”

To do that, an adviser needs to make it past the RFP to tier two: the interview. “Until you meet someone in person, it’s very hard to show that [fit] on paper,” Elco says. An adviser who makes it to the interview should focus on honing in on the potential client’s needs, she says. Listen carefully to the people at the meeting, rather than have an attitude of “‘I have a standard presentation and I’m going to get through it no matter what,’” she says. 

An Adviser RFP Template

Many plan sponsor staffers struggle to put together an adviser-search request for proposals (RFP), since it falls outside their area of business expertise and they often have no prior experience of the process, says Eric Henon, executive director of the Retirement Advisor Council in East Granby, Connecticut. To help them, in 2012 the council released a five-page RFP template for a retirement plan adviser search, available on its website.

The RFP template breaks down into nine sections. “About Your Firm/Team” asks for information in such areas as the extent of an advisory firm’s retirement plan business, while “Service Team” focuses on details about the key people who would work with the plan. “Investment Services” probes for how an advisory firm evaluates investments, for example, while “Participant Services” inquires about participant-dedicated resources. “Provider/Vendor Services” looks into issues such as how an adviser benchmarks vendors.

“Fiduciary Status and Compliance” asks advisers about their willingness to serve as a 3(21) or 3(38) fiduciary, among other questions. “Fees” includes a request for a breakdown of fees for all services covered under the proposal. “Technology” asks about issues including proprietary applications, while “Security and Business Continuity” examines, among other things, an advisory firm’s disaster-recovery plans.