At CAPTRUST, we believe that professional retirement plan advisors can help plan sponsors manage their plans more effectively and create better outcomes for their plans and participants. Advisors can assist with plan design, participant engagement, investment, fiduciary process, and vendor management issues related to overseeing a retirement plan. While it may at first seem daunting to many plan sponsors, finding the right advisor can be made easier by following a thoughtful process that includes a comprehensive advisor RFP. Retirement plan advisors can help plan sponsors select and review retirement plan investment options, stay up to date with evolving regulations, and assist with fiduciary processes. They can also help provide clarity about provider service fees and expenses and deliver participant education or advice. These are all important roles, but how do you find the right advisor? How can you validate that your current advisor is providing state-of-the-art services at a competitive price? The advisor request for proposal (RFP) appears to be on a fast track to become the preferred method for conducting an advisor search or documenting that an existing advisor is qualified to meet an individual plan’s specific needs. This position paper—with insights gleaned from CAPTRUST’s experience responding to more than 700 advisor RFPs over the past ten years—provides a step-by-step roadmap for executing an effective advisor RFP process that will help you find an advisor suited to your plan and participants’ needs— whether you already have an advisor or are considering hiring one. SUMMARY conducting an effective advisor rfp process: Best Practices for the Evaluation and Selection of Retirement Plan Advisors March 2014 www.captrustadvisors.com ADVISOR SUPPORT GROUP | POSITION PAPER
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At CAPTRUST, we believe that professional retirement plan
advisors can help plan sponsors manage their plans more
effectively and create better outcomes for their plans and
participants. Advisors can assist with plan design, participant
engagement, investment, fiduciary process, and vendor
management issues related to overseeing a retirement plan.
While it may at first seem daunting to many plan sponsors,
finding the right advisor can be made easier by following a
thoughtful process that includes a comprehensive advisor RFP.
Retirement plan advisors can
help plan sponsors select and
review retirement plan investment
options, stay up to date with
evolving regulations, and assist
with fiduciary processes. They can
also help provide clarity about
provider service fees and expenses
and deliver participant education
or advice. These are all important
roles, but how do you find the right
advisor? How can you validate that
your current advisor is providing
state-of-the-art services at a
competitive price?
The advisor request for proposal
(RFP) appears to be on a fast
track to become the preferred
method for conducting an advisor
search or documenting that an
existing advisor is qualified to
meet an individual plan’s specific
needs. This position paper—with
insights gleaned from CAPTRUST’s
experience responding to more
than 700 advisor RFPs over the past
ten years—provides a step-by-step
roadmap for executing an effective
advisor RFP process that will help
you find an advisor suited to your
plan and participants’ needs—
whether you already have an advisor
or are considering hiring one.
SUMMARY
conducting an effective advisor rfp process:Best Practices for the Evaluation and Selection of Retirement Plan Advisors
March 2014
www.captrustadvisors.com
ADVISOR SUPPORT GROUP | POSITION PAPER
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CAPTRUST FINANCIAL ADVISORS
www.captrustadvisors.com
conducting an effective advisor rfp process:Best Practices for the Evaluation and Selection of Retirement Plan Advisors
InTRodUCTIon
The ongoing evolution of employer-sponsored retirement plans and
accompanying increased scrutiny of fiduciary responsibility have
heightened the need for plan sponsors to benchmark retirement plan
services and fees against industry norms and best practices. Plan sponsors
have for a long time used a formal request for proposal (RFP) process
to identify prospective recordkeepers, third-party administrators, and
investment managers—or to benchmark and validate incumbent providers.
Recently, many plan sponsors have started taking the same approach when
hiring retirement plan advisors or benchmarking an existing advisor’s
services and fees. In fact, the advisor RFP appears to be on a fast track
to become the preferred method for conducting an advisor search or
documenting that an existing advisor is qualified to meet an individual
plan’s specific needs.
At CAPTRUST, we see four primary plan sponsor motivations for
engaging in an advisor RFP process:
1. PlAn CHAngeS oveR TImeRetirement plans grow and change over time as a result of acquisitions,
divestitures, downsizing, hiring, and investment returns. Many plan
sponsors engage advisors to determine if existing plan features and
services are up to date and appropriate for the plan’s participant base.
2. InCReASed FIdUCIARy bURdenThe challenges of complying with ERISA guidelines and Department
of Labor (DOL) regulations seem to grow annually. While some plan
sponsors feel well equipped to cope with these increasing responsibilities,
many do not and seek to share fiduciary liability with a retirement plan
advisory firm.
The advisor RFP appears to be on a fast track to become the preferred method for conducting an advisor search.
3Conducting an Effective Advisor RFP Process
ADVISOR SUPPORT GROUP | POSITION PAPER
3. mARkeT InTellIgenCe
An advisor RFP can provide a robust evaluation of a
plan’s incumbent advisor and can be used to verify that
fees and services charged are competitive, identify any
missing capabilities, and provide written documentation
of the advisor selection or benchmarking process.
It is always prudent from a fiduciary perspective to
understand the market.
4. FoRmAlITy oF PRoCeSSHaving a long-term relationship with an advisor who has
provided good service to your plan and participants for a fair
fee may not be enough to satisfy DOL investigators during
an audit. Documenting the process for how and why you
selected that advisor can help provide additional protection.
Of course, commissioning an advisor RFP does not
obligate a plan sponsor to hire a retirement plan advisor.
While we believe a skilled, professional advisor can
bring to a plan specialized expertise, the mere act of
conducting a formal advisor RFP process can provide
helpful insights to plan sponsors—even if they choose
not to engage an advisor. A formal advisor RFP process
provides an opportunity to gather intelligence on the
current state of the art for retirement plan advisory
services, pricing for those services, and the different
business models of advisors providing them.
Conducting an advisor RFP process will cause you
to think critically about your plan and whether the
current service model, investment lineup, and other plan
components continue to effectively meet the needs of
plan participants. The process is also likely to identify
potential service gaps or fiduciary issues. Regardless of
whether you choose to use an advisor or not, a well-
documented RFP process provides support for your
decision and demonstrates that, as a plan sponsor, you
8. Whatisthetotalnumberofemployeesinthefirm? a. Ofthose,numberofemployeeswhoare InvestmentAdvisoryRepresentatives(IAR). b. Ifyouusesub-contractors,whoaretheyand forwhatservices?
9. Whatisthepositionofyourfirmintheemployer- sponsoredretirementplansbusiness? a. Percentageofrevenuefromretirementplan investmentadvisoryservices. b. Planassetsunderadvisement. c. Totalnumberofclientswithdefinedcontribution plansunderyouradvisement. d.Numberofcoreclientplans(withwhomyourfirm hasregularquarterlycontact). e. Numberofclientplansaddedoverthe past24months. f. Numberofclientslostoverthepast24months. g.Publicationsyourfirmhascreatedorcontributedto. h. Recognitionreceivedfromindependentsources demonstratingexpertiseandcredibility.
The section that follows is excerpted from content developed by the Retirement Advisor Council (RAC) as part of an initiative to create awareness and drive adoption of the advisor RFP process by plan sponsors. In addition to the template RFP, the RAC has also documented a protocol for its use that plan sponsors may find helpful. For more information, please visit their website at www.dcpicadvisors.com.
2. Primarycontactforourrelationship: a. Overallexperiencewithemployer-sponsored retirementplans b.Commitmenttotheretirementplansbusiness c. Education,honors,designations,and othercredentials d.Regularactivitiestostaycurrentonmarket andregulatorydevelopments e. Areaofexpertise f. Yearswiththefirm g.Roleatthefirm h. Numberofplanssupported i. Averagesizeofplanssupported
3. Iftheprimarycontactwillnotbetheonlyperson withwhomwewillbeworking,pleaselistname(s), contactinformation,andprofileinformationforeach personincluding: a. Overallexperiencewithemployer-sponsored retirementplans b. Education,honors,designations,andother credentials c. Areaofexpertise d.Yearswiththefirm e. Roleontheteamservingourplan f. Numberofplanssupported g.Averagesizeofplanssupported h. Numberofplanslostthisyear
4. Describeyourinvestmentresearchresources andcapabilities. a. Howareinvestmentbenchmarksdetermined? b. Isyourinvestmentresearchproprietaryorfrom athirdparty?
committee as quickly thereafter as possible, while the meetings are still
fresh in committee members’ minds.
In addition to a finals presentation, be sure to check at least two references
for each finalist and, if feasible, conduct a site visit of their offices. You
may also want to preview advisory contracts and do a little preliminary
negotiation to help accelerate final decision making. While some or all
of the finalists will deliver dynamic sales pitches, be sure to meet your
obligations as a plan sponsor by making sound decisions based on facts
rather than emotion.
While selecting the right advisor to help manage your plan may be the
objective of your advisor RFP, documenting your process is equally
important from a fiduciary liability standpoint. Be sure to fully track your
process, from initial meetings with plan stakeholders through question
development, candidate list, review, and final selection. The more robust
and comprehensive your documentation, the less likely your decision will
be questioned by regulators or other third parties.
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ADVISOR SUPPORT GROUP | POSITION PAPER
Conducting an Effective Advisor RFP Process
ConClUSIon
Retirement plan advisors provide important services for plan sponsors and
participants—but how do you find the right advisor? How do you know you
are getting state of the art services for your plan and a competitive price?
We believe that a well-crafted and well-run advisor RFP process can help
plan sponsors identify and prioritize their most important issues, gather
intelligence on advisory services available in the market, help simplify
decision making, and document an important fiduciary process.
While the prospect of drafting and running an advisor RFP process may
be intimidating, by applying the step-by-step process, best practices,
and tips outlined in this paper, this potentially overwhelming project
can become attainable. Conducting an advisor RFP will cause you to
think critically about your plan and whether the current service model,
investment lineup, and other plan components continue to effectively
meet plan participant needs. The process is also likely to identify potential
service gaps or fiduciary issues. Regardless of whether you choose to
use an advisor or not, a well-documented advisor RFP process provides
support for your decision and demonstrates that, as a plan sponsor, you
have covered all the bases.
PRePARATIon
¨ Determinepurposeand keystakeholders
¨ Gathercontentand retirementplaninformation
ImPlemenTATIon
¨ Assembleyourdeliverable
¨ Identifyrecipients
¨ Determineandfinalize responsestructure
¨ DistributeRFPtocandidates
deCISIon mAkIng
¨ Receiveandreview finalresponses
¨ Determinefinalists
¨ Conductfinalsmeetings
¨ Selectadvisor
¨ Documentprocess
AdvISoR RFP CHeCklIST
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CAPTRUST FINANCIAL ADVISORS
www.captrustadvisors.com
The Employee Retirement Income Security Act (ERISA) requires that fiduciaries of employee benefit plans administer and manage their plans prudently and in the interest of the plan’s participants and beneficiaries. In carrying out these responsibilities, plan fiduciaries often rely heavily on pension consultants and other professionals for help. Findings included in a report by the staff of the U.S. Securities and Exchange Commission (SEC) released in May 2005, however, raise serious questions concerning whether some pension consultants are fully disclosing potential conflicts of interest that may affect the objectivity of the advice they are providing to their pension plan clients.
Under the Investment Advisers Act of 1940 (Advisers Act), an investment adviser providing consulting services has a fiduciary duty to provide disinterested advice and disclose any material conflicts of interest to their clients. In this context, SEC staff examined the practices of advisers that provide pension consulting services to plan sponsors and trustees. These consulting services included assisting in determining the plans’ investment objectives and restrictions, allocating plan assets, selecting money managers, choosing mutual fund options, tracking investment performance, and selecting other service providers. Many of the consultants also offered, directly or through an affiliate or subsidiary, products and services to money managers. Additionally, many of the consultants also offered, directly or through an affiliate or subsidiary, brokerage and money management services, often marketed to plans as a package of bundled services. The SEC examination staff concluded in its report that the business alliances among pension consultants and money managers can give rise to serious potential conflicts of interest under the Advisers Act that need to be monitored and disclosed to plan fiduciaries.
To encourage the disclosure and review of more and better information about potential conflicts of interest, the Department of Labor and the SEC have developed the following set of questions to assist plan fiduciaries in evaluating the objectivity of the recommendations provided, or to be provided, by a pension consultant.
1. Are you registered with the SeC or a state securities regulator as an investment adviser? If so, have you provided me with all the disclosures required under those laws (including Part II of Form Adv)?
You can check yourself — and view the firm’s Form ADV — by searching the SEC’s Investment Adviser Public Disclosure (IAPD) website. At present, the IAPD database contains Forms ADV only for investment adviser firms that register electronically using the Investment Adviser Registration Depository. In the future, the database will expand to encompass all registered investment advisers — individuals as well as firms — in every state. If you can’t locate an investment adviser in IAPD, be sure to contact your state securities regulator or the SEC’s Public Reference Branch.
2. do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan? If so, describe those relationships.
When pension consultants have alliances or financial or other relationships with money managers or other service providers, the potential for material conflicts of interest increases
The section that follows is excerpted from a May 2005 bulletin published by the U.S. Department of Labor (DOL) Employee
Benefit Security Administration (EBSA). While the publication itself is a little dated, the information contained may be
helpful to plan sponsors looking for more formal guidance from official sources regarding the selection and monitoring of a
retirement plan advisor or consultant. For more information, visit the DOL EBSA website at www.dol.gov/ebsa.
SeleCTIng And monIToRIng PenSIon ConSUlTAnTS — TIPS FoR PlAn FIdUCIARIeSU.S. Department of Labor Employee Benefits Security Administration, May 2005
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ADVISOR SUPPORT GROUP | POSITION PAPER
Conducting an Effective Advisor RFP Process
depending on the extent of the relationships. Knowing what relationships, if any, your pension consultant has with money managers may help you assess the objectivity of the advice the consultant provides.
3. do you or a related company receive any payments from money managers you recommend, consider for recommendation, or otherwise mention to the plan for our consideration? If so, what is the extent of these payments in relation to your other income (revenue)?
Payments from money managers to pension consultants could create material conflicts of interests. You may wish to assess the extent of potential conflicts.
4. do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships from being a factor when you provide advice to your clients?
Probing how the consultant addresses these potential conflicts may help you determine whether the consultant is right for your plan.
5. If you allow plans to pay your consulting fees using the plan’s brokerage commissions, do you monitor the amount of commissions paid and alert plans when consulting fees have been paid in full? If not, how can a plan make sure it does not over-pay its consulting fees?
You may wish to avoid any payment arrangements that could cause the plan to pay more than it should in pension consultant fees.
6. If you allow plans to pay your consulting fees using the plan’s brokerage commissions, what steps do you take to ensure that the plan receives best execution for its securities trades?
Where and how brokerage orders are executed can impact the overall costs of the transaction, including the price the plan pays for the securities it purchases.
7. do you have any arrangements with broker-dealers under which you or a related company will benefit if money managers place trades for their clients with such broker-dealers?
As noted previously, you may wish to explore the consultants’ relationships with other service providers to weigh the extent of any potential conflicts of interest.
8. If you are hired, will you acknowledge in writing that you have a fiduciary obligation as an investment adviser to the plan while providing the consulting services we are seeking?
All investment advisers (whether registered with the SEC or not) owe their advisory clients a fiduciary duty. Among other things, this means that advisers must disclose to their clients information about material conflicts of interest.
9. do you consider yourself a fiduciary under eRISA with respect to the recommendations you provide the plan?
If the consultant is a fiduciary under ERISA and receives fees from third parties as a result of their recommendations, a prohibited transaction under ERISA occurs unless the fees are used for the benefit of the plan (e.g., offset against the consulting fees charged the plan) or there is a relevant exemption.
10. What percentage of your plan clients utilize money managers, investment funds, brokerage services, or other service providers from whom you receive fees?
The answer may help in evaluating the objectivity of the recommendations or the fiduciary status of the consultant under ERISA.