It’s time to start the request for proposal (RFP) process with two of your top plan-clients. One wants to consider bids from recordkeepers and the other wants to see proposals from plan auditors and recordkeepers. The last round of RFPs with these plans was a headache, but you’re hopeful this time will go more smoothly.
Plan RFPs have become more common, according to Ariana Amplo, founder and CEO of InHub, an online RFP-technology provider. “Ten years ago, $1 billion-plus plans were issuing RFPs and five years ago, we saw many 401(k) plans over $100 million who took RFPs very seriously,” she notes. “Now, it’s really moved to plans $10 million and up. RFPs are important and they aren’t going away, so embracing them in an advisors’ practice and an investment committee’s review schedule is no longer just forward thinking, it's necessary.”
Cynthia Hayes, CFA, CEBS and president of consulting firm Oculus Partners observes that plan advisors often work with different types of RFPs. If the advisor is primarily an investment advisor, he or she will most likely get involved with the process of selecting managers for the plan’s investments. More specialized retirement plan-focused advisors with a broader set of services will typically offer their services relating to RFPs as a separate project and for a separate fee, she explains.
The basic RFP process is straightforward. The advisor develops the RFP; some write their own forms while others use templates like that provided in the SPARK Institute’s “Request for Proposal (RFP) Guide.” Next, the advisor selects the prospective providers and sends them the RFP with the relevant submission details and deadlines. Responses come back; the advisor and plan sponsor evaluate the proposals and select the provider.
It sounds easy enough, but the reality can be a lot messier. Hayes says that the process of assimilating the requested information and creating a way to evaluate those responses often is still extremely inefficient and probably one of the hardest things that the advisor must do. Amplo also highlights several common difficulties and inefficiencies. “For plan sponsors, it’s not knowing the best process, not knowing what questions to ask and how to word fee-related questions, not knowing whom to invite, and of course, running this project through email is hugely inefficient,” she says. “For advisors, with RFPs they run for clients, the difficulties lie more in the administrative difficulties of the project.” These difficulties can include managing multiple respondents, collecting and organizing numerous documents and keeping track of and prudently documenting all communication and evaluation metrics, among others.
A helpful first step to make RFPs more efficient is for the sponsor to clearly define the scope of services under consideration because providers often offer multiple services and products. For example, many record keepers also provide financial wellness services, HSA services, 529 services or student loan debt management services, Hayes says. Determining in advance which programs are of interest will keep the response focused and make the evaluating committee’s job easier. Another important preliminary step is to clearly state the evaluation criteria, she adds: “Understanding how the providers are going to be evaluated is important to help them respond appropriately.”
Advisors and plans can create customized RFPs, but it’s frequently more efficient for all parties to follow a standardized format with customization used only when absolutely necessary. Hayes says the availability of resources like the SPARK Institute’s guide has helped to standardize the questions and it has allowed providers to develop electronic databases of questions and answers, which makes the process less onerous for them. Additionally, keeping the candidate list as short and as qualified as possible with no more than seven candidates for advisor RFPs and often five for recordkeeper RFPs will keep the process efficient and reduce many hours of proposal evaluation, says Amplo.
Online RFP resources, like InHub, are another option for increasing efficiency. Amplo explains that the web-based technology can help advisors and sponsors mitigate the behind-the-scenes work of creating, distributing, collecting and organizing information. This allows the reviewers to focus on what’s important, namely, evaluating information in a standard format and making better recommendations and decisions. Because online RFP platforms are now available, it is imperative that groups evaluate them and determine if they can be more efficient with software versus emailing Word documents, she maintains.
The availability of online RFP-generation and management software can also allow an advisor to roll out a fee-based RFP service with less development time and expense. Offering this type of service is both a business development and business defense move, says Amplo: “Based on our experience, advisors who don’t offer RFP services to clients will see their clients go elsewhere to receive help for these projects and it may very well be a competitor of theirs.”