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In the midst of a recent adviser search, a plan sponsor shared an analogy with adviser Gerald Wernette to compare different firms’ approaches. “He said, ‘Gerald, we’re talking to a lot of advisers, and it’s like they all want to make us a hamburger. But you are the first adviser to ask how we want it cooked and what we want on it,’” says Wernette, a principal and director of retirement plan consulting at Rehmann Retirement Builders in Farmington Hills, Michigan.
To Wernette, that comment speaks to the importance of focusing on understanding the sponsor’s concerns and needs—and doing so right from the beginning of the search process, even before the adviser responds to a request for proposals (RFP). “The industry has gotten so competitive,” he says. “I have found that it’s really important to ask questions and listen to the sponsor, and for the sponsor to know that it’s not getting some cookie-cutter approach. It’s getting something that fits its particular needs.”
Sponsors’ use of a more formalized search process to find an adviser has become increasingly common, particularly among larger plans. “RFPs are now a standard part of prospecting,” says Greg Middleton, director, adviser support group at CAPTRUST Financial Advisors in Raleigh, North Carolina. “We view them as the price of entry for a finalist presentation.” He attributes this largely to the increasing regulation of 401(k) plans, as well as growing interest in the plans from C-suite executives such as chief financial officers (CFOs).
Often, 70% to 80% of an adviser RFP covers standard questions such as explaining the firm’s investment-analysis process, Middleton says. “The other 20% to 30% is where the plan sponsor will put in specific topics related to the issues that sponsor is trying to address,” he says. “It’s that 20% to 30% that distinguishes or separates the respondents.”
Pre-RFP Prep Work
CAPTRUST sees it as crucial for an adviser to have a
substantive conversation with the sponsor before even starting to craft an RFP
response. “We don’t respond to RFPs that are ‘cold,’” Middleton says, meaning
those his firm gets from sponsors without talking ahead of time. The advisory
firm wants to get a good sense of whether a sponsor’s needs mesh well with its
advisers’ skills and whether the potential exists for CAPTRUST to build a
long-term, solid relationship with the sponsor.
In some cases, sponsors hire outside consultants to help with an adviser search, and the consultant usually can identify the sponsor’s key issues for an adviser, says David Witz, CEO and managing director at consultant and fiduciary-tool provider FRA PlanTools in Fort Mill, South Carolina.
In addition, it can help for advisers to get a sponsor’s permission to talk to the plan’s recordkeeper, says Matthew Demet, a vice president and partner responsible for business development at Spectrum Investment Advisors in Mequon, Wisconsin. “We want to understand from the recordkeeper more about how the plan’s operations are working,” he says. “We want to get information on things such as enrollment, contributions, distributions and compliance issues.”
When talking with a sponsor upfront, there are a few subjects an adviser should discuss. “We delve into things such as: What prompted the RFP? What’s really working well for the plan today, and what’s not working?” Demet says. “What are the employer’s objectives for the plan? How does the plan fit into the total benefits strategy? And what level of [participant] engagement does the sponsor want? Some sponsors say, ‘We make the plan available to employees, and it’s up to them to meet us halfway.’ Others say, ‘We want to really take it to them,’” for instance by actively encouraging participation.
Advisers should listen to sponsors in these meetings. Wernette recommends letting sponsors carry the weight of the conversation. “If they are not doing 90% of the talking, you’re not having a good intelligence-gathering meeting,” he says. “Typically, that’s all we’ll do—start off with a few focused questions, and they’ll start telling us things. If you do it right, rather than you trying to do any pre-selling to them, they’ll basically tell you how to sell to them.”
Try to understand what “pain points” sponsors have as they conduct this adviser search, Witz suggests. “You’ve got to find out what the plan’s complexities are and what the sponsor’s challenges are,” he says. “I can’t give you a list of, ‘Here are the questions you need to ask to win the business.’ It’s different for different sponsors. You need to ask questions and respond with a little education, and that starts creating that ‘It’ factor. You want the sponsor to say, ‘Wow, this guy gets me.’”
Adviser Kurt Jackson frequently works with smaller plans—i.e., those in the $1 million to $20 million range—and common themes often emerge in these early conversations. “[One] typical pain point on running the plan [is] that it’s too confusing and the government has too many regulations,” says Jackson, CEO of Central Coast Wealth Management LLC in San Luis Obispo, California. These sponsors frequently want help to better understand fiduciary roles and characteristically want to outsource some fiduciary responsibilities, such as having a recordkeeper serve as a 3(16) fiduciary.
Wernette often goes beyond an initial conversation at this stage. When Rehmann Retirement Builders has a prospect meeting with a plan committee, it usually does a written survey asking each individual committee member to rate his satisfaction with the current adviser on a scale of one to seven, with seven indicating complete satisfaction. With a committee, “I am not able to just sit there and ask questions, because the strong people on the committee will steal the show,” meaning he will not get to hear the perspectives of quieter board members, he says.
In these written surveys, Rehmann first asks committee members how happy they are overall with the current adviser. Then the survey quantifies that in several areas: investment reviews; understanding the client company’s changing needs; offering strategies to improve the plan’s performance; sharing strategies to improve the participation rate, deferral rates and investment allocations; proactively checking in with the sponsor; updating the sponsor on new industry and legislative developments; helping the sponsor understand its fiduciary and administrative responsibilities; offering day-to-day support to the sponsor; working on employee education; and assisting employees with retirement planning.
“Then we ask, ‘Overall, how satisfied are you that your plan is achieving its objectives?’ Quite often they say, ‘I haven’t thought about it that way. What do you mean, “achieving our objectives”?’” Wernette continues. “And we ask, ‘Would you recommend your adviser to sponsors looking for help with their 401(k) plan?’ That answer can be really telling for them.”
The RFP Response
After the prep work is done, it is time to apply all that
gathered information to the RFP. When writing their response, advisers can take
several steps to increase their chances of getting the business.
First, an advisory firm should explain that it understands that plan’s specific needs, and provide evidence that it has experience helping in similar situations. “They want to know, how well can you handle our plan?” Witz says. “An adviser has to convince the plan sponsor that the plan is in his or her ‘sweet spot.’ It’s very important for advisers to communicate that their core competency is where the plan lives.” An adviser can specify what percentage of his overall business involves similarly sized plans, for instance.
Adds Jackson, “You try to show what’s going to separate your services from other firms’ and to have that resonate with what they are really looking for.”
Spectrum has seen an increase in sponsors wanting to discuss how to help employees maximize their benefit, Demet says. In RFPs, the advisory firm can provide specific examples and information about how its advisory services will help in that area. For example, he explains, the firm talks about its willingness to serve as a 3(21) fiduciary at both the plan and participant levels—and about how many advisory firms refuse to do the latter, since it means giving participants specific investment advice tailored to them, he says. In order to speak to sponsors concerned about the investment allocation of their participant base, an advisory firm also can offer evidence of its success with other clients in helping participants better diversify their asset allocation.
Second, an advisory firm should demonstrate that it has the staff and resources to address that plan’s needs. Advisers need to proactively provide the most relevant details, whether an RFP asks for them or not, Jackson says. Since many sponsors have little experience writing adviser RFPs, oftentimes they do not know the best questions to ask. “They don’t ask things such as, ‘Tell us about the credentials of the specific people who would be working on the plan,’” he says.
When Fiduciary Plan Governance LLC helps plan sponsors evaluate advisers during searches, it looks closely not just at the lead adviser but at the depth and experience of the whole team, says Edward Lynch, CEO of the Newbury, Massachusetts-based consulting firm, whose work includes assisting sponsors with adviser searches. It helps if advisory firms have in-house expertise such as an Employee Retirement Income Security Act (ERISA) attorney, staffers with a background in benefits or plan administration, a former Department of Labor (DOL) investigator, chartered financial analysts (CFAs) and/or credentialed and experienced communications specialists, he says.
Take the communications team, for example. “We want to know, what do they do? How do they help people understand the decisions they need to make?” Lynch says. “We’ll say, ‘Show us examples of what you put together, such as a curriculum. And what can you show us in terms of your success rates?’”
Third, advisers can help their chances by giving the sponsor a choice. Spectrum finds it can distinguish itself in adviser searches by its flexible approach to how a sponsor wants to allocate its fees. The advisory firm can work on an asset basis, a per-head basis or for a flat fee, Demet says. “Flexibility in this area has been well-received,” he says. “We’re seeing more interest from sponsors in a per-capita arrangement or a flat fee, versus an asset-based fee,” he notes.
Witz suggests offering several different mixes of services and fees that the sponsor can choose from on the RFP response. “I would much rather give someone a choice between me and me, as opposed to a choice between me and somebody else. So you need to give plan sponsors more than one [fee] quote,” he says. “You can tell sponsors something like, ‘You can have my platinum package, and here is what we’ll do. Or you can take my gold package, and this is what we’ll do. Or you can take my silver package, and this is what we’ll do.’”
And if an advisory firm has benchmarked itself and knows that its fees run above average versus peers’, the RFP response should proactively explain the reason for that. “If you find that your pricing is higher than the mean or the average, then you have to address why,” Lynch says. “What justifies this fee? What are you bringing to the table that others can’t? And how is that going to be meaningful to the plan sponsor?”