401(k) Advisor RFP Best Practices

Conducting a Request for Proposal (RFP) process is a systematic way to evaluate potential plan advisors and select the one best suited to meet the needs of both the company and its employees. This report outlines best practices for plan sponsors to follow when conducting an RFP for 401(k) plan advisory services.

Why Conduct An RFP?

Here are four key reasons why it’s important for plan sponsors to conduct a 401(k) advisor RFP:

Evaluate Multiple Advisors. The process provides a structured method to compare different advisors based on a set of standardized criteria.

Ensure Fiduciary Compliance. By documenting the process and criteria used to select an advisor, plan sponsors can demonstrate due diligence and prudence.

Identify the Best Fit. The process helps identify an advisor whose services align with the specific needs and goals of the plan and its participants.

Negotiate Better Terms. The competitive nature of the RFP process can lead to better service terms and lower fees.

10 Best Practices for Conducting a 401(k) Advisor RFP

1. Define Objectives and Scope

Before issuing an RFP, clearly define the objectives of the 401(k) plan and the scope of advisory services needed. This may include:

• Fiduciary support and compliance
• Investment selection and monitoring
• Participant education and communication
• Plan design and benchmarking
• Fee transparency and negotiation

Establishing clear objectives ensures that the RFP addresses the specific needs of the plan and its participants.

2. Assemble an RFP Committee

Form a committee responsible for overseeing the RFP process. This committee traditionally includes members from departments such as HR, finance, and legal, ensuring a comprehensive evaluation from different perspectives. If possible, you may also want to consider inviting a mix of both HCE and non-HCE employees from additional departments or areas of company operations to get an even broader representation of perspectives and opinions.

3. Develop a Detailed RFP Document

The RFP document should include the following:

• Introduction and Background: Provide an overview of the company, the 401(k) plan, and the purpose of the RFP.
•  Scope of Services: Clearly outline the services required, including any specific needs or expectations.
  

• Proposal Requirements: Specify the information and format required from respondents. This typically includes company background, team qualifications, service approach, fee structure, and references.
•  Evaluation Criteria: Detail the criteria that will be used to evaluate proposals, such as experience, service offerings, fees, and client references.
• Timeline: Include deadlines for proposal submission, interviews, and the final selection.

4. Distribute the RFP to a Targeted List of Advisors

Identify and invite a select group of advisors to participate in the RFP. This list can be developed through industry research, referrals, or using a third-party consultant with expertise in advisor selection. Ensure the list includes advisors with experience and a strong track record in managing 401(k) plans.

5. Conduct a Thorough Evaluation of Proposals

Upon receiving proposals, the RFP committee should:

• Perform an Initial Screening: Review each proposal for completeness and adherence to RFP requirements.
•  Complete a Detailed Analysis: Evaluate the proposals based on the predefined criteria. Pay particular attention to the advisor’s experience with similar plans, their approach to fiduciary responsibilities, and their fee structure.
• Complete Interviews and Presentations: Shortlist the top candidates and invite them for interviews and presentations. This provides an opportunity to ask detailed questions and assess their ability to address specific needs.

6. Check References and Conduct Due Diligence

Contact references provided by the advisors to verify their claims and gain insights into their performance and client satisfaction. Additionally, conduct background checks and review any regulatory filings or disciplinary actions.

7. Evaluate Fees and Value for Money

Assess the fees quoted by each advisor in the context of the services offered. Consider both direct fees and any indirect costs, such as revenue sharing arrangements. Ensure that the fees are reasonable and transparent, and evaluate the overall value for money.

8. Make the Final Selection

Based on the evaluation of proposals, interviews, and reference checks, the RFP committee should select the advisor that best meets the plan’s needs. Ensure the selection process is well-documented to demonstrate compliance with fiduciary responsibilities.

9. Negotiate the Contract

Once an advisor is selected, negotiate the terms of the contract to ensure clarity and alignment on service expectations, fees, performance standards, and termination provisions. Consider including service level agreements (SLAs) to define performance metrics and accountability.

10. Communicate the Decision and Implement the Transition

Communicate the selection decision to all stakeholders, including plan participants, and provide a clear plan for transitioning to the new advisor. This includes setting timelines for the transfer of responsibilities and assets, if applicable. In addition, if the advisor provides financial planning services to employees (such as one-on advice, guidance or counselling), it’s important to communicate and promote that information with employees (along with specific details regarding engaging with the services).

Final Thoughts

Conducting an RFP for 401(k) advisory services is a critical task for plan sponsors to ensure they select the best advisor to meet their fiduciary responsibilities and support the financial well-being of plan participants. By following these best practices, plan sponsors can navigate the RFP process effectively, make informed decisions, and establish a successful partnership with a qualified 401(k) advisor.

A POST-RFP CHECKLIST FOR PLAN SPONSORS

• Perform Ongoing Monitoring and Evaluation. Continuously monitor the advisor’s performance against agreed-upon metrics and conduct periodic reviews to ensure ongoing alignment with plan objectives and compliance requirements.
• Maintain Regular Participant Communication. Maintain open lines of communication with plan participants to keep them informed about the advisor’s role, services provided, and any changes to the plan.
• Conduct Annual Fiduciary Reviews. Conduct annual fiduciary reviews to reassess the advisor’s performance, fee structure, and alignment with the plan’s needs. This ensures the plan remains competitive and well-managed.

• Stay Informed About Industry Trends. Stay informed about industry trends and regulatory changes that may impact the 401(k) plan. This helps ensure that the plan and advisor remain compliant and can adapt to evolving best practices.