Seven experts offer advice for
making your next provider search efficient and
successful
» Consultant or DIY?
» Before You Get Started
» The RFP Process
» Finals Presentations
» Site Visits
Maybe your current 401(k) provider is taking too long to
return your phone calls; maybe its investment lineup reads
like a mutual fund scandal hit parade; or maybe it is just
time to see what else the market has to offer. Whatever the
explanation, it is time to search for a new retirement plan
provider. Time to call a consultant, right?
Maybe, but, even if you decide to let a consultant lead
your search, there is still much that you, the plan
sponsor, can do to make the search as efficient and
successful as possible. To find out just what to do, we
talked with seven experts who live and breathe searches day
in and day out. Herewith, their advice for making the most
of yours:
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Consultant or DIY?
A consultant will help you to fine-tune your objectives;
suggest potential providers; create, distribute, and
synthesize the results of RFPs (requests for proposals);
negotiate contract terms; and assist with implementation of
your new plan. If you are a large or sophisticated sponsor,
you may have the expertise to do that on your own. If you
are a very small plan, you may not be able to afford a
consultant; searches easily can run $35,000 to
$100,000.
If you chose the DIY route, there are many tools to help
you, including Pathfinder, the search service offered by
this magazine's parent company at www.plansponsor.com. At
the Web site for the Society of Professional Administrators
and Recordkeepers (SPARK), you can download a model RFPno
charge. Each November, you can learn what your peers have
to say about the performance of dozens of the nation's top
recordkeepers in our annual Defined Contribution Survey
(that information is online the rest of the year at
www.plansponsor.com).
"If sponsors take the time to do a self-study and
determine what's really important to them in a plan and
what they want out of a provider, I think they can, on
their own, narrow their search down to a handful of
providers," says Steve Wilt, a senior financial advisor
with Merrill Lynch. "On the other hand, running a search is
a very cumbersome process that takes a great amount of
time, and most sponsors end up needing advice from
somebody, either a consultant or an advisor. They need to
know what they don't know." Consultants are paid by their
plan sponsor clients to offer unbiased advice. Advisors can
be stock brokers, insurance agents, bank officers,
financial planners, money managers, or third-party
administrators. They typically are paid by a commission
from the vendor who gets the sponsor's business.
Consultants argue they can save you as much if not more
than what you pay them by exploiting their knowledge of the
provider marketplace to negotiate a better deal for you.
"We live and breathe this stuff and understand where all
the values are buried," says William Schneider, managing
director with the consulting firm DiMeo Schneider &
Associates in Chicago. Even providers credit consultants
with bringing value to the table, particularly through
their ability to compare the various pricing models used by
different providers.
If you do work with a consultant, pick one that
routinely works with plans similar to yours in size and
type. Then, consultant in towor notkeep the following in
mind as you go through your search:
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Before You Get Started
Take the job seriously. Believe it or not, some
employers do not. "Plan sponsors have a fiduciary duty and,
for whatever reason, a lot of people sort of assume that
ERISA is a bunch of boilerplate and they really don't have
to pay too much attention to it," says Schneider. "That is
obviously not true, particularly in this day and age."
Allow sufficient time for the process. Even a fairly
routine search can take six months from start to completion
of the conversion process, and longer is not unusual. "We
get people sending us an RFP who want to make a decision in
April and implement on July 1, and they don't have a prayer
in the world of making that happen," says Schneider.
Keep an open mind. "Some sponsors have their own
agenda," says consultant Robert Liberto, a vice president
with Segal Advisors in New York City. "In their minds, they
have already determined who they want, and they want us to
vindicate their decision. More often than not, that doesn't
happen." Schneider concurs. "Clients sometimes have it in
their minds that the big-name firm is going to be their
solution," he says. "Once they see the actual operations,
they sometimes find that some other firm, maybe one they
didn't really know about, is perfect for them."
Assemble a team and keep it functioning. Different
segments of your organizationhuman resources, treasury,
payroll, IT, the executive suitewill have different issues
that are critical to them during the search process. Build
a team that includes representatives from each groupand
possibly a plan participant as welland make sure each
member is diligent about staying involved at every stage of
the process. "Often, one or two members will drop out on
site tours, and then the sponsor can't truly make an
evaluation of all the providers across the board," observes
Beth Ann Smith, a national consultant coordinator with plan
provider Wachovia Retirement Services.
Document your goals. List your issues with your current
provider, what you would like to change, and your other
search goals, and then keep your list handy. "After the
site tours are completed and follow-up questions answered,"
says Smith, "go back and pull out that list of goals and
compare them to what you ended up looking at. A lot of
times, people will forget what drove their search in the
first place." David Katz, a partner with consultant Rocaton
Investment Advisors in Norwalk, Connecticut, adds,
"Determining what's important to the sponsor will drive the
whole selection process and influence the types of service
providers we might put on your shortlist of
candidates."
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The RFP Process
Show some restraint. Be wary of sending out a 150-page
RFP that asks the same question three times in three
slightly different ways. More important, says Schneider, is
to make sure your RFP addresses the issues most important
to you.
Think investments. "Remember that, at the end of the
day, these are investment programs," says Chris Lyon, also
a partner with Rocaton Investment Advisors. "You want to
find a provider who not only has all the bells and whistles
for the participants and who makes administration easy for
you, but also offers the most appropriate and competitive
array of investment choices with respect to their
investment merits and fees."
Compare apples to apples. "Once vendors have responded
to your RFPs, you want to put the information into some
sort of matrix that allows you to compare everything apples
to apples," Schneider says. "You don't want to be looking
at Vendor A's glossy literature, which may look better than
Vendor B's not-so-glossy literature, and making your
decision based on which one has prettier materials."
Get your back office in order. Long before you select a
vendor and begin the conversion process, "make sure your
participant and payroll information is up to date with your
current provider, in good order, and ready to go," says Bob
Hord, also a national consultant coordinator with Wachovia.
"That will drive your conversion date."
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Finals Presentations
Select a manageable number of finalists, and try to
interview them all on the same day. Interview 10
"finalists" over the span of a month, and you will have a
hard time remembering what you heard from the first few
candidates. Schneider recommends choosing no more than four
vendors to make presentations.
Demand proof of performance. "Vendors can make a lot of
promises in the RFP, but sponsors need to know if they back
that up with verifiable service metrics," says Ben
Brigeman, senior vice president with plan provider Charles
Schwab Corporate Services. Typical measures to check: the
time it takes the provider to process contributions once
they are received, process a distribution or loan request,
or mail participant statements after quarter end.
Keep the questions coming. "If there's something that
hasn't been explained well or is confusing to you, you have
to ask more questions," says Gary Jackson, managing
director of plan provider New York Life Retirement Plan
Services. "It's not the questions you ask that kill you,
it's the questions you don't ask."
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Site Visits
Go. Schneider says sponsors make site visits only about
half the timea mistake. "We've seen some surprises in
cases where people [made the visits]," he explains. "They
went off thinking that Vendor A was their first choice
hands down, then switched their allegiance to a second
vendor once they'd made their visits." Katz adds that
working successfully with a service provider involves more
than making sure you have compatible technology. "Some of
it is more personal and client service-oriented," he
argues. "The chemistry you develop during a site visit can
tell you a lot about how you will fit in with the culture
of the service provider."
Visit more than one provider. "If you visit just one
provider, you may come away thinking that everything looks
and sounds wonderful, but you really have no basis for
comparison," Katz says. "If you spend the next day at
another provider, you might find that some of the things
you thought were so neat are actually the industry
standard." His preference: Visit two finalists. "By the
time you are doing site visits, we're fairly confident that
either vendor could serve you well," he explains, "but what
we can't evaluate is your personal chemistry with the
organization, and how you fit together culturally."
Buddy up. Do not be satisfied to meet people whose only
job is to sell you on the provider's services. "Have your
technology person spend time with the provider's technology
person, have your payroll person spend time with their
payroll person, and have your conversion person spend time
with their conversion team," advises Lyon. "That gives you
a chance to really understand not just how things are
handled with the typical client, but how they will be
handled with you."
Watch what providers do, not just what they say. "What's
the environment like?" asks Liberto. "If it's hectic and
people are running around and things seem not to be
coordinated, the provider may have too much going on. When
you're visiting the call center, look at the screens their
customer service representatives are pulling down. Put the
headphones on and listen to the conversations their people
are having with participants. See if they have enough
people to support the calls coming in."
Kick the tires. Liberto recommends that you demo a
provider's Web site and even phone into its call center.
"There are providers who try to put everything on one Web
page, which can be confusing, or that have telephone
systems that make you go through five or six menus before
allowing you to talk to an operator," he says. "You want to
know that."
Before making your final selection, do not forget to
check the prospective provider's references, preferably
ones you've chosen from their complete client roster that
are similar to your plan. "If you ask specific questions,
you can find out a lot about how the provider really
performs," Liberto says.
Finally, Schneider suggests that, once you have narrowed
your potential choices down to two vendors, go back and
renegotiate fees, services, and other aspects of the
proposed dealwhile you still have the flexibility to do
so. Happy hunting.
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