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.
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.
Before issuing an RFP, clearly define the objectives of the 401(k) plan and the scope of advisory services needed. This may include:
Establishing clear objectives ensures that the RFP addresses the specific needs of the plan and its participants.
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.
The RFP document should include the following:
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.
Upon receiving proposals, the RFP committee should:
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.
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.
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.
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.
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).
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.