Recently my registered investment advisory (RIA) firm has been fortunate to receive a number of requests for proposals (RFPs) for investment advisory services. While I am grateful to receive these RFPs, I continue to be puzzled by how some plan sponsors choose to manage their RFP process. Below, I have provided some tips on how plan sponsors can optimize their RFP process to ensure it produces the best possible result.

Don’t send your RFP to everyone

Although it might seem appealing to send your RFP to every adviser you can think of, that generally is a bad idea. Most advisers will want to know how many other advisers received your RFP. Once I learn that there are 15 advisers competing for your business and that my odds of winning are minuscule, it is unlikely that I will decide to devote the 20 to 40 hours needed to respond to your RFP. Instead, pick three to five advisers you would like to do business with and send the RFP to them. This will make your RFP review process much easier, lead to a more focused search, and increase the odds that you will end up with the right adviser.

Do everything electronically

Some of the RFPs I receive come through the mail and offer a paper or electronic response option. Your best bet to manage the deluge of information you are about to receive is to do everything electronically. Although you may not be requesting sample performance reports, Investment Policy Statements or contracts, many, if not most of the advisors who will respond to your RFP will provide them. If you offer both paper and electronic response options, many, if not all advisors will respond both electronically and with hard copies (they believe this is a demonstration of thoroughness). You will end up with a stack of paper a foot or two high. I know this from conducting/managing recordkeeper searches for decades. Email your RFP and require electronic submission of all responses.

Please, email me a Word file

Unfortunately I rarely receive RFPs in a Word file. A plan sponsor once said to me, “Too bad, Bob. I am busy; you will have to retype everything yourself.” That is not a good way to start a mutually respectful relationship. Although I am very thankful to receive your RFP, I am busy too. Make it easy for everyone and email your RFP in a Word file.

Become a knowledgeable purchaser

Take the time to learn and understand the important decision variables in hiring an investment advisor. For example, RIA firms like mine are currently required to provide a higher standard of fiduciary care to their clients as compared to brokerage firms. This will continue to be true even after the new Department of Labor regulations on fiduciary responsibility go into effect. It is important that you, as the purchaser of these services, at least understand the questions you should ask to distinguish the difference. You don’t need to completely understand the roles and responsibilities, but you should understand there are differences that can benefit your firm.

Don’t hire the best sales team

Try to avoid hiring the best sales team, rather than the best consultant. There are some super sales people in this business who are very good at winning business but either not involved in keeping it or not very interested in servicing it. The individual doing most of the talking at your presentation should be your day-to-day contact. Make sure you get to know him/her.

Don’t conduct a recordkeeper and investment advisory search at the same time

Every RFP I have received recently has requested bids on the cost of conducting a recordkeeper search and for ongoing investment advisory services. The RFPs have made it clear that these are two distinct bid requests. Most investment advisers do not charge anything to conduct a recordkeeper search for their clients. But if you request bids for each service separately, you can expect to pay anywhere from $5,000 to $50,000 for a recordkeeper search. Save that money by hiring your investment advisor first, then asking him/her to conduct the recordkeeper search for you.

Please give me time to respond

It took you longer to issue your RFP than you thought it would, right? Now you need to play catch-up in order to get a new adviser in place by your deadline date. The solution? Shorten the amount of time advisers have to respond to your RFP. I just received an RFP that needs to be turned around in two weeks. To increase the odds that you receive as many responses as possible, allow at least a month for advisers to get back to you. Requiring a quick turnaround may appear to be a test of an adviser’s interest in doing business with you, but it will actually ensure that you receive responses from those advisers who are the least busy. Maybe they aren’t busy for a reason?

Most of the advisers I respect do not respond to RFPs. They can’t justify the long odds of winning and the 20 to 40 hours it will take to put together a response. Make sure that your RFP process is a success by following these basic tips. There is no adviser that I know of who won’t participate in a highly focused RFP process.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access