Performing an Effective Benchmarking of Plan Advisers

Just as retirement plan sponsors should periodically benchmark the services of their recordkeeper, third-party administrator and asset management firms, they should also benchmark the services of their consultant or adviser, experts say.

Surprisingly, however, “there are many retirement plan sponsors that started working with an adviser as long as 20 years ago and that have never benchmarked them,” says Steve Wilt, senior vice president and a financial adviser with CAPTRUST. And among retirement plans with an adviser, roughly 20% are not acting as a co-fiduciary and 25% are not retirement specialists, he adds. “If sponsors were diligent about benchmarking their advisers, they might discover that they are not experts on retirement plans,” Wilt says. “It is absolutely important to kick the tires. There are a lot of broken plans out there, without an adviser or without an expert adviser.”

Dot Foods used the services of InHub to benchmark advisers and found surprises that led it to hire a new adviser. A survey from InHub found the No. 1 issue motivating an RFP was a reduction in proactive service or response rate (80%).

So, where should a sponsor start? “There is a cottage industry of independent third party specialists and ERISA [Employee Retirement Income Security Act] attorneys that can help plan sponsors conduct formal requests for proposals [RFPs] on their advisers, and most sponsors are benchmarking advisory fees and services on an annual basis,” says Paul Sommerstad, a partner at Cerity Partners. Some of these specialist companies include Curcio Webb, North Pier Consulting, InHub and Wagner Law Group, Sommerstad says.

And as sponsors are continuously asking more from their advisers, it becomes increasingly important for sponsors to stay on top of whether or not these services are being satisfactorily delivered, Sommerstad adds. These include going beyond the three F’s of providing solid funds, reasonable fees and fiduciary services, he says, to “fiduciary training for the committee, deep dive plan design analysis, participant education and advice and even help with M&As.”

Thus, for any benchmarking exercise to lead to informative results, the sponsor needs to first determine what outcomes it wants from its adviser, says Bob Carroll, head of workplace distribution at MassMutual. These could be improving the plan participation and deferral rates, bolstering the projected income replacement ratio, and ensuring that there is a reasonable distribution of investments based on age, income and risk tolerance, Carroll says.

And even if a sponsor is satisfied with its current adviser, it is wise for the plan sponsor to issue a RFP every few years to see what other advisers have to offer, Carroll says. “Most plan sponsors are constantly hearing from prospecting advisers, so there is no shortage of opportunity for plan sponsors to speak to other advisers,” he says.

Sponsors that want to conduct a RFP on their own can obtain an RFP template from the Retirement Plan Advisor Council, Wilt says. He recommends that sponsors narrow the search down to three to four retirement specialists, or who he calls “elite advisers,” adding that some sponsors make the mistake of including generalists in their search.

“Another way is to identify the top advisers in your area and invite them in for an interview,” he adds. “You don’t necessarily have to go through the paper process of a RFP. Ask them how they plan to make an impact on the plan to benefit participants. Ask them for a quote and a proposal and document that process.”

Cerulli surveyed 401(k) plan sponsors in the fourth quarter of 2018 and found that 37% were planning to conduct a search for a new adviser in the next 12 months, with the main reason being their current adviser was not effectively negotiating with their other service providers, followed by underperforming funds in the lineup, says Anna Fang, a research analyst with Cerulli.

Craig Rosenthal, senior vice president of advisor sales and service at Fiduciary Benchmarks, says that when his firm analyzes the services of advisers, it considers four factors: quality, service, value and extra credit.

“Quality is who is the adviser,” Rosenthal says. “What credential do they have? How much insurance coverage do they have? Services cover the things the adviser actually does. Do they take on fiduciary status? How many meetings do they hold a year? Value is the results they deliver. What types of participant success measures do they achieve? Extra credit is what extra work or hours do they offer? The combination of these four things leads to quality benchmarks.”