Plan Committee in Search of Investment Comparison Really Needed RFP Assistance

A company requested that we submit a proposal for performing investment due diligence. They had searched for a new plan provider and wanted to compare the proposed investment lineup that the provider was suggesting against the investments in their current plan lineup to determine whether to switch. They were seeking proposals for this service from several advisors, I'm sure.

Let me tell you why this isn't really what they needed.

They wanted to use the investment lineup as a factor in determining whether to hire the vendor...which won't entirely work.

Choosing a plan provider based on the suggested lineup a vendor provides is actually faulty reasoning. Any plan lineup can be built to beat up another one's performance. All that is needed is to pick last year's winners and ignore what might happen in the future, right? Plus, there are VERY few plan providers that won't allow you to choose from hundreds of investment options for your plan. Recordkeepers will often put together a suggested lineup that could be well-researched...or not. It could be full of proprietary funds...or not.

What these folks actually needed was help in choosing an investment lineup from the many, many options they had available to their plan.

They desired a fiduciary opinion on the subject...but they really didn't.

I mean, they did, but they didn't. To be a responsible fiduciary, one must know all the applicable details to the situation to decide in best interest of the people you would affect. How old are the employees? What is their education level? What investments are they currently using and why? How were those investments chosen? How should they be? What criteria needs to be considered for constructing the menu that is respectful of company philosophies and values? So, while they desired a fiduciary level opinion, they really couldn't obtain anything but a suitability opinion by going this route.

They wanted to know if the fees were reasonable...but they only looked at investment fees by themselves.

Often, the total fees of the plan will influence the investment expenses. Many recordkeepers, administrators, and brokers/advisors are compensated indirectly from plan investments and assets. If you're not comparing investment share classes that have those types of fees stripped out, you're not really able to compare what's reasonable because you're paying for multiple services at the same time. Should a company not want to pay out of pocket for their retirement plan, those fees are built into the plan somewhere and likely affecting investment expense ratios.

What they really needed:

An advocate, a translator, a personal shopper, and a subject matter expert to guide them through the RFP and vendor selection process.

What they needed was a Planologist. They were on the right track, but what they didn't have was someone to put it all together for them and explain the whole strategy.