Why Retirement Plan Advisor Due Diligence is so Critical Now
TPSU - The Plan Sponsor University
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Anatomy of a Recent RFP
When the benefits administrator at an $80 million plan contacted TPSU (The Plan Sponsor University) recently about conducting due diligence and possibly a request for proposal (RFP) on their current retirement plan advisor, she was unsure if their incumbent was doing everything she needed to help run and improve her 401(k) plan.
Immediately, I knew there was a problem because the incumbent advisor stated their role was limited to managing investments—not overseeing vendors or assisting with compliance.? Fast forward and the incumbent did not even make the final round.? Instead, a variety of regional Retirement Plan Advisors (RPAs) demonstrated their ability to address all aspects of the plan, often at a lower cost.
This highlights a critical point: Even if a plan has a good or great RPA, conducting a full RFP every five to seven years—or sooner, in cases of material changes such as the advisor being acquired by another firm—is essential.
Rethinking the Role of Your Advisor
Many plan sponsors ask, “What should I expect my advisor to do or help me with?” I would suggest that the question should be, “What shouldn’t my advisor do or help me with?”? The only thing your advisor should not do or be involved with is conducting due diligence on themselves.
For example, while RPAs don’t perform recordkeeping, they should act as the liaison with the provider—ensuring the provider is doing their job effectively and leveraging relationships to maximize service and efficiency for your plan.
Using a healthcare analogy, think of your advisor as your doctor. After assessing the needs of your family (employees), your advisor should recommend appropriate hospitals (record keepers) and pharmaceuticals (investments), while constantly monitoring performance and conducting due diligence.
Staying Competitive in a Changing Landscape
While the war for talent may be waning, organizations still want to have competitive plans to retain and recruit talent.? The 401(k) and 403(b) industries are coming up with many new services beyond the Triple Fs (fees, funds and fiduciary) based on new laws and technology which is hard for plan sponsors to keep up with including:
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The list goes on – is your advisor bringing all these ideas to you?
The RFP Process: Why It’s Worth It
Some advisors argue that benchmarking is enough.? However, benchmarks are inherently backward looking reflecting outdated pricing and services.? Just as advisors don’t let record keepers benchmark themselves, plan sponsors shouldn’t allow advisors to do so either.
Understandably, many plan sponsors are wary of conducting an advisor RFP – it’s time consuming, expensive, they do not know where to start and they may not want to disrupt the relationship with their current RPA, all of which may be true.
Which is why TPSU, having conducted over 600 half-day training programs since 2013, is now helping plan sponsors to conduct the RFP through the RPA Due Diligence service, greatly reducing the time commitment required from plan professionals.? Additionally, The Retirement Advisor University or TRAU has a database of qualified RPAs, having trained almost 2,000 RPAs who hold the Certified 401(k) Professional designation (C(k)P), a credential developed in collaboration with UCLA Anderson School of Management, and is the only industry certification affiliated with a major university.
A Cost-Effective Solution
The costs associated with conducting an RFP can often be covered using assets from the plan’s forfeiture account. Moreover, if your current RPA resists the RFP process, it’s a strong indication that an RFP is needed—particularly as fees are declining precipitously.
Beyond the ERISA requirement for plan sponsors to ensure that fees paid out of plan assets are reasonable through a documented due diligence process, conducting an RFP is a practical way to ensure your RPA is delivering maximum value to your organization and its employees.? Why wait?