WHILE MOST MID-MARKET and larger Defined Contribution plans routinely send out an RFP when shopping for a new record keeper, very few plans of any size use the same process for an advisor.  Many plans have inherited their current advisor and most have never conducted a formal search or review process.  For the same reasons that a 401(k) plan sponsor should conduct a periodic due diligence of their record keeper and investments, they should review the qualifications, pricing and services provided by their advisor to determine if the value is reasonable.  Arguably, getting the right advisor is the most important decision a sponsor can make, and, without periodic due diligence of the advisor, a plan may be in breach of their fiduciary responsibility.

401kExchange estimates that 85% of plans with under $10 million in assets either do not have a retirement advisor or do not have one with sufficient experience.  Though larger plans are better represented, a substantial percentage of these plans are without proper representation.  A $160 million plan recently approached us to help them create an RFP for an advisor.  They use an advisor who is paid 25 BP’s out of 12(b) (1) fees yet they did not have much contact with that advisor.  Though surprising, these situations are not uncommon in larger plans and certainly the norm for smaller plans.  Though all advisors would prefer just to be hired without going through an RFP process, sometimes suggesting this activity for a complacent sponsor can create activity.  And while most advisors would prefer not to go through this process with current clients, they may be at risk from other advisors looking to poach their plans, especially if asset based pricing has caused compensation to be out of step with current industry norms.

In working with the $160 million plan, 401kExchange developed an RFP template to help experienced, qualified retirement advisors to help sponsors expose the pretenders in this market.  The areas covered in the RFP include:

1. Profile of the advisor’s books of business by plans and assets under management sorted by:
   1. Plan size
   2. Plan types
   3. Types of businesses
2. Services covered:
   1. Investment committee
   2. Participant enrollment, education, advice and IRA rollover support
   3. Co-fiduciary status
   4. Investment and record-keeping due diligence processes and reports
   5. Staff assigned for each of the service
3. Provider partners used for each of the markets and plan types
4. Compensation Models

While the RFP or process does not have to be exhaustive, especially for smaller plans, helping a sponsor understand their duty to prudently select an expert advisor to help them fulfill their fiduciary responsibility through a documented process may prove to be an effective business development technique.  The real question is if the plan does not have an experienced retirement advisor, what are they paying for? Most likely, the costs for that advisors paid by the participant will not pass the reasonability test.

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