The Right Lure
Requests for proposal generally occur at some point during a client-adviser relationship. For some, they are part of the introduction or early period; for others, the time to reexamine providers happens a few years in.
Whenever it happens, the RFP process is not just about finding a provider, says Michael W. Kozemchak, Managing Director at Bloomfield Hills, Michigan-based Institutional Investment Consulting. For one, it is also an opportunity to benchmark plan provisions. “The whole goal [of the process] is to support fiduciaries,” agrees Todd Timmerman, Managing Director at Principal Financial Group and author of the white paper “Best Practices: Making it Personal when Conducting Provider Searches for Plan Sponsor Clients.” “It is not just about finding a recordkeeping solution,” he says.
The benefit of the process for a retirement plan adviser, regardless of when it happens, says Matthew P. McLaughlin, Senior Institutional Consultant with The MHC Group at Graystone Consulting at Morgan Stanley Smith Barney in Danvers, Massachusetts, is that the relationship between the retirement plan adviser and plan sponsor, or plan sponsor’s company, gets stronger during the RFP process.
“You may find out some things you didn’t know,” McLaughlin adds, whether there are administrative headaches or pain points with someone at the company you don’t work with regularly.
Avoiding a Switch
Although a request for proposal traditionally resulted in a conversion, sources say that isn’t always the point now. “Where clients think they want to go to an RFP, an intermediary can help them decide whether that is really necessary,” Kozemchak says.
The majority of the time, says Joel Shapiro, ERISA Specialist and Senior Plan Consultant at 401(k) Advisors in Aliso Viejo, California, it is not the vendor that is the problem. “A lot of times it is internal,” and the adviser is integral in diagnosing what the problems are. “Advisers can use this to strengthen relationships,” he says, by crawling inside clients’ internal procedures and administrative functions. Advisers can find the bottlenecks, and help resolve them.
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Some problems can be resolved without changing vendors. Timmerman says, when a plan sponsor tells an adviser he wants to look for a new provider, the adviser should start by asking, “What is your measure of success, and can you get that with your current provider?”
Kozemchak says if the plan sponsor is unhappy with the recordkeeper, he sometimes starts the dialogue by putting the recordkeeper on probation and switching the relationship manager, letting the recordkeeper know it has 12 months to turn things around. Sometimes it is as simple as changing the relationship manager, he notes; that person has to be a personality and skill set fit.
“At least 50% of the time we can stay with the current provider,” Kozemchak says. However, sometimes, he adds, it is just a bad fit and “we can try as hard as we want, but the recordkeeper isn’t going to do what the client wants it to do.”
“Usually you know there is a problem or there has been a voiced concern,” McLaughlin agrees. “Most of the time, it’s lack of attention…or a client service issue.”
The objective might, in that case, be to refocus the provider, McLaughlin says. However, if that is done in the context of an RFP or RFI, a new set of expectations might set in; the plan sponsor might like the new suitors and decide that it is not worth rehabbing the current provider. Although McLaughlin says about 75% of the time he starts an RFP the client isn’t necessarily looking for a change; 40% do wind up changing their provider for some reason.
Putting a Process in Place
There are three deliverables advisers bring to the RFP process, says Timmerman: They navigate the marketplace based on experience; provide a process for the plan sponsor; and help to manage distractions during that process.
A solid RFP process does two things, says Shapiro:, It first ensures that the retirement program meets company goals and enhances participants’ ability to retire, and, second, it allows for documentation and makes sure all the decisions regarding the plan are recorded.
It is important to know what the objective of the plan is, Kozemchak says. For example, if the client says he wants to increase plan participation, he might think that it is necessary to ask in the RFP for a provider that offers many participant meetings. However, Kozemchak notes, an adviser can reframe the discussion and might find a provider that can reenroll the plan at a much lower cost, making up for the increase to the company match contribution.
“Our role is to help them understand what the questions are, and to help the client prioritize what’s important,” McLaughlin comments. A retirement plan adviser can help ensure the plan sponsor is positioning the questions accurately. For example, the client might say certain administrative functions are not too important, but that’s because they are all outsourced, and the client might not realize he doesn’t have the bandwidth to support such tasks if they weren’t handled appropriately by the vendor. “We help them stay on track,” McLaughlin says.
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Finding a Fit
A benefit to doing RFPs for multiple clients annually, says McLaughlin, is that the process allows advisers to learn much about what is going on in the industry. “Providers are always leapfrogging each other,” he says, and by being active with clients looking for new recordkeepers, retirement plan advisers can stay ahead of what is going on with tools and features.
“Advisers can reconcile what the client is looking for with the vendors that bring that to the table,” Kozemchak says, noting that an adviser frequently can help plan sponsors get past their own biases. Although plan sponsors can do it alone, an adviser is able to help them understand the marketplace better and explain why their thoughts or experiences with a provider in the retail marketplace might not translate in the institutional segment. “This is an advantage for everyone; the recordkeeper doesn’t want to sell the client ‘A’ if the client is looking for ‘B’,” Kozemchak explains.
Good RFPs lay out goals, and the best ones ask for case studies, Timmerman says. “Recordkeepers want to hear, ‘Here is what is important to us; how will you address that?’”
“Ask for problem-solving help,” he says. “You want to ask, has the respondent dealt with companies like ours?” He suggests including open-ended questions related to plan sponsors, such as “How can you support the plan sponsor to make better decisions?” “What tools and resources do you have to help HR run the plan better?” “What processes do you have to help with fiduciary governance?”
Questions also can be asked about specific plan demographics, Timmerman says. One company with a large pre-retiree population asked, “What services and resources will you provide to our employees age 55 and older to help them?”
Advisers who raise the bar on questions they ask will provide better solutions to their clients, Timmerman says.
During the finals presentation, McLaughlin says, he asks providers, “What is the report you deliver to the client and how often?” and “Does the vendor have anything that is unique to the plan’s financial adviser?” By asking in the finals presentation with the client in the room, the client also can see how the three parties will work together, he notes.
Once a provider is selected, the adviser also can bring help ensuring plan sponsors get what they were promised. Sometimes there is a disconnect between what was sold during the sales process and what it says in the contract, Kozemchak says. An adviser can bring continuity between what is promised and sold, and what is delivered. By sitting in on the process and finals presentations, “we see the presale and what they deliver often. You learn who is good with a story and who has follow-through,” agrees McLaughlin. When something is sold, Timmerman says, the really good advisers say, “Make that part of your service agreement.”
Another key to understanding how “adviser-friendly” a provider might be is how they train call center representatives, McLaughlin says. He recommends that retirement plan advisers ask whether the reps have the financial adviser’s contact details on their computer screens when they look up plan information. “You know who is more willing to work with you and who will be that much more challenging,” he says. —Alison Cooke Mintzer