Selecting a Defined Contribution (DC) Plan recordkeeper, financial adviser or other service provider through a request for proposals (RFP) process can ensure it is best suited to the plan.
The RFP serves as a decisionmaking tool and provides important details based on personalized plan approaches, says Jim Scheinberg, managing partner at North Pier Search Consulting. Without using a well-constructed RFP and by just taking marketing proposals, employers risk noncompliance. “Far too often, that will end up leading to the employer purchasing a product from the most skilled marketers and not necessarily choosing the retirement plan service provider—whether it’s a recordkeeper or adviser—that best meets the plan or participants’ needs,” Scheinberg says.
He breaks down the RFP clientele into two markets: small and large plans. In smaller plans, employers are more likely to base their decision for a provider on the most prolific marketers, he says. This can be the organization that is frequently cold calling, constantly advertising their campaigns, etc. In this case, the employer’s decision to hire an adviser is based on the likeability or comfort level of the individual, and not necessarily on an objective evaluation process. By using an RFP that’s properly constructed, employers can do side-by-side comparisons of their short-list finalists to find out who the most qualified individuals are, regardless of the relationship an employer may have with them.
Additionally, Scheinberg warns that smaller plans are more likely to select a retirement plan adviser based on ancillary services they may already be consuming. For example, an employer may go to a benefits broker because they already have a business relationship with the broker, or they may go to a banker because a close executive in the company already has a personal financial relationship with the professional. “Both of those can obscure making a prudent decision for what’s best for the retirement plan by putting a personal lens over the decisionmaking process,” Scheinberg cautions.
For larger plans, the RFP is essential in creating a well-documented, prudent process that employers can go back to should their decisionmaking be questioned. How often does one need to embark on a full RFP? There is no fast and steady rule that’s been passed down from the regulators, Scheinberg says, but he notes that as an organization enters the seven- to 10-year range, challenges to the plan sponsor’s vetting of providers can crop up. He recommends going through an RFP process every five years, to stay on the safe side.