In a recent article from PLANSPONSOR, North Pier’s Managing Partner Jim Scheinberg discusses RFP technology, and how it can be an efficient tool in helping conduct a diligent RFP process. Below is an excerpt from the article.
Jim Scheinberg, managing partner at North Pier Search Consulting, says it is important for plan sponsors to remember that “technology is a tool, and not necessarily an outcome.”
At North Pier Search Consulting, where the firm runs hundreds of RFPs and searches for recordkeepers, advisers and OCIOs, Scheinberg says the firm is well-equipped to use various technology platforms because the firm is already “heavily armed” with research about various recordkeepers and advisers, and it is able to interpret the data these platforms produce.
For plan sponsors looking to take advantage of new tech tools coming on the market, Scheinberg says they need to be careful about falling into marketing traps.
“If you put an electronic RFP tool in the hands of an organization that doesn’t know how to interpret the information that’s coming out the other side, you could end up succumbing to market spin,” Scheinberg says. “The tool itself is much better than doing it by hand on spreadsheets, and [having] piles of written proposals sitting on desks can be heavily inefficient. But this is a case where replacing wisdom and experience with technology probably, more often than not, is going to lead to a nonoptimal outcome.”
Conducting a Diligent RFP Process
Scheinberg says plans of all sizes receive dozens of calls every month trying to get them to change providers. This constant marketing can “shake a plan sponsor’s confidence” in its current team of providers. According to Scheinberg, this emphasizes the importance of conducting a diligent RFP process.
“The RFP can be the great equalizer in that equation,” Scheinberg says.
He recommends that plan sponsors create a regimented process by deciding, for example, to go to market every five years for recordkeeping services and every seven years for adviser services. This internal policy addresses three issues:
“The regulators see a process that’s thought-out; the litigators have a well-documented evidence trail, so you can show you had procedural prudence; and you can push back at some of the vultures at the gate that are constantly trying to get your attention, and [you can] say, ‘Hey, we’re running an RFP routinely, and our next one up is in 2025. We’re happy to send it to you if you want to reply to it,’” Scheinberg explains. “It creates more of a regimented process instead of a reactive process.”
Plan sponsors have a regulatory duty to oversee their service providers, and Scheinberg says this responsibility was heightened by the passage of 408(b)(2) regulations by the Department of Labor in 2012. Under the law, covered service providers must provide plan fiduciaries with appropriate disclosures about services being performed and their costs.
In Scheinberg says lawyers typically say an RFP should be conducted every three to five years, and the majority of plaintiffs in ERISA litigation cases allege that RFPs should have been conducted when fees were being contemplated. But others have a more pragmatic view and say that the three-to-five-year window is too restrictive for medium and smaller-sized organizations that do not have the resources to conduct an RFP so frequently.
Scheinberg says the larger the organization, the more frequently an RFP is necessary.