The Department of Labor’s now-delayed Conflict of Interest rule has minimal effect on the fiduciary status of defined contribution (DC) plan sponsors, and very few expect to make changes immediately, according to a survey from The Plan Sponsor University and National Association of Plan Advisors (TPSU/NAPA), conducted in February 2017 (the “Survey”).1 However, plan sponsors do realize the significant impact the rule will have on the fiduciary status of plan advisors, and recognize that having an experienced advisor found through a documented process will be more important than ever.

With relatively low satisfaction scores and robust turnover rates indicated in the survey, searches for new plan advisors by plan sponsors, especially through RFPs, are expected to rise.

According to the Survey, the primary reason that plan sponsors are looking for a new plan advisor is that the plan outgrew their advisor’s capabilities—something that’s true for over 80% of larger plans (+$50 million) looking for new advisors.

When asked in the Survey how they found their plan advisor, plan sponsors indicated the following:

  • RFP – 20%
  • Inherited advisor – 16%
  • Recommendation by a colleague – 15%
  • Recommendation by a third party administrator or record keeper – 10%

The same Survey reveals that sourcing plan advisors through RFPs has been more prevalent within larger plans, with 38% of plans with more than $50 million sourced their advisor through an RFP, compared to just 4% for plans with less than $5 million and 23% for plans in between.

Overall, just 53% of 401(k) and 403(b) plan sponsors are “very satisfied” with their advisor, according to the Survey, compared to over 70% for record keepers in the most recent Defined Contribution Plan (DCP) study by Boston Research Technologies, conducted in 2015 (the “Study”).2 But the Survey clearly shows that levels of satisfaction were twice as high for those plan sponsors that sourced their advisor through an RFP compared to other methods. That could be due to a greater understanding of the advisor’s capabilities, resources and experience.

So why aren’t more plan sponsors implementing advisor searches through an RFP process? Plan sponsors rely on their advisor to conduct a record keeper RFP, but they are generally not used to receiving help with an advisor search due to the inherent conflict of interest. Professionals running their organization’s DC plan wear many hats, with very few focused on retirement plans. The process of conducting a formal search for a plan advisor is daunting and usually winds up at the bottom of the pile.

As an advisor, we believe there are a couple steps you can take to help in this process:

  • Provide a sample RFP to help kick off the process and give a framework for which questions are appropriate to ask. 
  • Engage an independent third party to conduct the RFP, such as TPAs, CPAs or other intermediaries. We learned through the Survey that just 39% of plans used a third party to help with their advisor RFP, compared to 62% for their record keeper. By leveraging a third party, much of the burden is lifted off of the plan sponsor and the conflict of interest between advisor and plan sponsor is eliminated.

With heightened awareness of the changing fiduciary status of plan advisors and more emphasis on the key role that advisors play, we anticipate that more plan sponsors will be using a documented, prudent RFP process that employs a third party to find and monitor their advisor in the future, and we believe that this trend is likely to begin to move down market from the larger plans to smaller and mid-size plans. As an advisor, RFPs could not only help you find new prospects, but could also assist current clients in understanding the value you add.