Why Plan Sponsors Search for New Advisers

Creating the first draft of a request for proposals (RFP) was voted the most difficult task in the RFP process by institutional investors who recently issued investment consultant RFPs, according to data from InHub, provider of an online RFP solution and guided process for the institutional investment community.

Data from 20 recent investment consultant RFPs issued directly by investment committees of defined benefit plans, defined contribution plans and foundations/endowments, found eight in 10 RFPs resulted in a new hire. Most RFP issuers indicated a potential replacement as a probable outcome prior to the RFP starting, for several reasons.

The No. 1 issue motivating an RFP was a reduction in proactive service or response rate (80%). Clients stated their advisers no longer initiated new ideas and had to be reminded of what used to be regularly scheduled services. For some, their advisers were no longer accessible, the client had to follow-up multiple times on meeting action items or the followup information was incorrect and unthoughtful. Some investment committees searched for a specialist due to a general feeling that they “could do better.”

Clients also had issues with adviser expertise; conversations with advisers may become generic and the client loses confidence in the adviser. They may discover opposing philosophies about plan design or investing, or the plan may have evolved to require more of a specialist adviser.

Other reasons for conducting an RFP for a new adviser could include changes to the plan or plan sponsor or changes to the adviser firm (75%), and the desire to benchmark for proper due diligence (5%).

The most popular adviser services requested by clients were in-person committee meetings (100%), ongoing plan benchmarking and vendor analysis (100%), and investment policy statement (IPS) review and implementation (100%). This was followed by a 3(21) fiduciary investment consultant contract in writing (more than 90%).

Forty percent of clients stated in the RFP that they want the adviser to perform a formal recordkeeper RFP immediately following selection of the adviser.

Clients asked for retirement plan participant education services too; one-fourth wanted the adviser to structure and track success of education leveraged from the plan provider, and one-half wanted the adviser in-person for participant education.

InHub says seven popular questions in more recent RFPs include:

• Does your firm target a specific client type or size? If yes, please elaborate.
• Provide the following information for this consulting team’s defined contribution clients. Please respond in the following order: number of clients, DC assets under advisement, median client size, and largest current client.
• If you had to choose an object to best represent your firm, what would it be and why?
• How does team measure the success of consulting relationships?
• Please outline, in detail, the process, resources and tools you would use to benchmark a plan of our size and how often you would recommend it is conducted. Does it also benchmark the Consultant services and fees? Please also attach a sample benchmarking report.
• Please outline, in detail, the process, resources and tools you would use to conduct a recordkeeper request for proposal, for this plan and how often you would recommend it is conducted. Please also attach a sample deliverable.
• Please provide any feedback/comments on our current investment policy statement and current fund lineup.

Common mistakes advisers make when responding to an RFP include:

• Not customizing key questions to the plan;
• Dodging questions about client base;
• Missing deadlines;
• Sloppy, confusing and excessive addendum documents;
• Showing little ‘personality’, or differentiating factors; and
• Not choosing brevity when applicable.