Magazine

Done Deal | Published in September 2016

Adviser Benchmarking

A plan sponsor does adviser due diligence—and finds the unexpected

By Rebecca Moore | September 2016
Art by Chris Buzelli
Dot Foods, a large food service distribution company in Mount Sterling, Illinois, was happy with the adviser that serviced its $200 million 401(k) plan and $3 million nonqualified deferred compensation (NQDC) plan.
 
Tom Strieker, director of benefits and compensation at the company, says the adviser helped it formulate the plans’ fiduciary and original investment policies, monitored investments, and helped it to conduct three requests for proposals (RFPs) for a plan administrator over a 13-year period.
 
PROBLEM: The adviser to the plans had not been formally reviewed or benchmarked against peers since being hired. “Our No. 1 motivation for doing an adviser RFP was due diligence,” Strieker says. “We do it for providers, so we felt we needed to do it for our adviser.”
 
SOLUTION: The RFP sat on the agenda for about 12 months before the company got started. At that point, Strieker engaged RFP service provider InHub, to help with the adviser benchmarking. Service had been good, so it was easy to kick the can down the road, Strieker told InHub.
 
InHub offers a range of service models. A mid-level support service might include sample RFP questions, access to inHub’s adviser platform and technology assistance—basically service assisting the plan sponsor up to the point the RFP is issued.
 
A full-assistance offering supplies RFP drafting; a short list of candidates that meet the sponsor’s criteria; custom score cards for the committee’s use when evaluating the proposals; an executive summary of responses, with a fee comparison chart; and help to coordinate the finals presentations and create the agenda and scoring methodology.
 
Dot Foods selected a middle service model in which InHub helped form the RFP and provided candidates, but Dot Foods also found candidates via other sources such as PLANSPONSOR.com.
 
At the start of the process, Strieker believed the likelihood of replacing the adviser was less than 10%. But, as the benchmarking continued, he was surprised to find their incumbent was not competitive on pricing. In addition, the plan committee learned that some advisers were willing to take an active role in participant communications—which the incumbent was not. “It was good news, seeing the services we could get for a competitive price,” he adds.
 
Another surprise was that the committee realized “its plan was one of the biggest fish in the incumbent’s pond” and decided it was time to move to an adviser who already had a working model for a plan the size of Dot Foods’ and could lead it as it grew, Strieker says. “We’re getting bigger with acquisitions and expansions, and we wanted to feel comfortable with an adviser who had gone through these things before.”
 
The formal process, despite being started for due diligence, did result in the hiring of a new adviser, this past June. This professional has a broader book of business, in which Dot Foods may be a better fit, and will not only continue to match the services provided by the former adviser, but will supply general education and advice to participants plus expanded electronic communications.
 
The cost savings is significant—34%, compared with the prior adviser. “One thing that was really good for us was we switched from asset-based to a flat fee,” Strieker notes. “With an upmarket, and as we add participants from acquisitions and expansions, our fees with the prior adviser would have been driven up, so this is an opportunity for future savings.”

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