CFO Magazine Webinar: Thinking about evaluating your company’s 401k advisor? What finance leaders need to know.Posted: September 24, 2018
[00:00:00] Welcome to our Web cast. Thinking about evaluating your company’s Farra one key adviser what finance leaders need to know. Do you buy our. The publisher of CFO Magazine and CFO dot com and sponsored by North Pier.
[00:00:14] I’m Joe Fleischer. I’ll be your moderator before we get started. But like a cover a few features of the console that view on the left side of your console you will be able to view slides and respond to polling questions in a moment I’ll tell you how to respond to polling questions. But in the meantime I would note that from the resource area of your console you will be able to click on a link to download a PDAF document that comprises central slides from our reps webcast as well as click on a link to view information about upcoming events that offer the opportunity to hear from and meet finance leaders in person.
[00:00:50] Now although we will plan to dedicate the latter portion of our cash to addressing your questions we do invite you to take your questions and comments at any time during our webcast. Q Any area of your console now those who join our life webcast will have the opportunity to earn a certificate representing one continuing professional education or CPA credit to be eligible.
[00:01:12] We ask that you respond to at least three of the four polling questions We’ll intersperse Ratter webcast to respond to a polling question when it appears we ask that you select the radio button that corresponds to your answer and then click on the submit button so we can record your response after we have posed our last. That is our fourth polling question during our webcast. If you’ve ever answered at least three of the four polling questions and are therefore eligible to receive credit you will be able to click on an icon to demo distractive get located in the suffocation section of your console. If you have responded to at least 3 polling questions during a live webcast but are not able to retrieve your certificate we’ll be able to do so when this webcast is available on demand at the start of next week. Within the webcast section CFO Thaicom. Now what we get started I would like to introduce our very distinguished guests joining us today are Jim Steinberg who is managing partner with North Pier search consulting and Greg Metzger a senior consultant with north pier and by way of background. Jim Sheinberg mentioned as a managing partner with north pier has been providing search monitoring and investment services to receive fiduciary since 1994. Just by way of background. In 2001 he founded the Corporate Services group of Oppenheimer Company or CSG one of the retirement industries first conflict free or conflict free the only aggressive consultants. And in 2008 Jim lifted out of the core of the Lifted out the core CSC a CSG team and created North Pier Fiduciary Management introducing one of the industry’s first Rissa 338 discretionary practices. In 2012 Jim refocused the firm to address a crucial industry void that we’ll talk about and that is pioneering search services for 4 1 or 3 B and defined benefit plan sponsors for their selection and oversight of plan advisors actuaries record keepers and other service providers. And I would like to note also that Jim Sheinberg regularly serves as an independent expert for theU.S. Department of Labor and as an expert witness for illicit litigation. Joining us also will be Greg Metzger a senior consultant with north pier. He is a retirement and investment consultant with more than 30 years of experience helping organizations design administer and fund their retirement plans. He’s helped more than 200 clients run Aristide’s retirement plan service providers and placed more than 90 billion in retirement plan assets. And Greg joined North Pier in 2014 and is the firm’s national search practice leader at this stage it is my pleasure to turn the floor over to Jim Sheinberg once again managing partner with North Pier. Please give a warm welcome to him. Thank you very much.
[00:03:52] Thank you so much. Really happy to be here today working with the CFO. Just a review. We’re all looking to accomplish the people who’ve decided to join this Web cast. Obviously have a specific interest in what’s going on in the monitoring and selection process of advisers. And when we sat down and thought about this topic we realized that it really broke down into four areas. One is know what is what’s driving advisers advisors search in this space what is driving plan sponsors actually looking at this topic right now. So we will break in to both the if you will the want of the industry as well as the regulations and the case law that are driving a lot of those wants and needs. We’re then going to walk you through what to expect in a typical advisor evaluation in an hour. If that’s what an organization decides to embark on and then ultimately we’re going to give the participants in the webcast the different routes that they can take as planned. Q Cheris and committees if they do decide to go out and embark on this evaluation process and of course Greg and I’ve been doing this for a very long time I think Rex got 20 some light years in running. Q I’ve been doing search in your research space since the 90s. And so we’re going to share with you a lot of tips and pitfalls to avoid. In our experience in practice especially what we’ve seen in the advisor search space in the last few years. Thank you very much Jim.
[00:05:25] And what I’d like to do now is pose the first of four polling questions will intersperse throughout our webcast. Our first polling question asks you to indicate which applies to you at least during the last seven years. So what you have to do is select the radio button that corresponds to your answer and then click on submit button so we can record your response. We want you to indicate is during the last seven years and here are the choices you’ve run an RFP or search for an advisor.
[00:05:53] You’ve evaluated an existing adviser through other means. You run an RV for a record keeper but not for an adviser.
[00:06:00] He’s been a fiduciary but not on any of the above. You’ve never been a fiduciary. And this question does not apply to what you’re welcome to do is select the radio button that corresponds to your answer and then we ask that you click on the submit button so we can record your response.
[00:06:14] What we will do is give you just a few more seconds to respond. Well then summarize how you have responded and then continue our discussion. Once again we do ask that you select the radio button that corresponds to your answer and then click on the submit button so we can record which choice applies to you and we’ll now do to reveal how you have responded and what is quite interesting in looking through a looking through those of you who have some have been in a fiduciary role is that of those of you who have been in a fiduciary role in the last seven years. What’s interesting is that a plurality so roughly 20 percent have evaluated an existing adviser through other means than running an RFP or searching for an adviser.
[00:07:01] So with that in mind we now like to do is continue our discussion but I think that those results are pretty consistent with what we find as we’re embarking out in the industry.
[00:07:18] What we’re seeing is that last column is starting to get smaller and smaller to the second the last column which is I’ve run an advisor recompute research but I’ve never run anonymizer search. When we asked a question about three years ago that was about 75 percent. So the world is starting to change which is which is great. Really what we see is these days of my four different main categories that are driving planned for new series and committees to go out and embark on this adviser evaluation. Predominantly it’s related to the relationship getting I’ll use this term not to write a negative connotation but the relationships getting a little stale meaning that it’s been around for a while. Five to ten years have gone by since you’ve hired the advisor and it’s getting time to take a look at the situation. And typically for organizations that fall into these categories it breaks down into one of three categories. Frequently these days because of the new regs and the litigation that’s coming up we’re finding more and more in this first category in which the committee is very satisfied with their advisor. They really like what’s going on. They’re very confident in that relationship but it’s just been a long time and they know that they’re due for a routine check of the market. They know that they’re supposed to be out there saying this from time to time and they will checking the box but also you know going through the exercise of learning what the market has to make sure that that confidence is valid. The second category I think still is by far the largest category that we get hired in on and that is that you like your adviser and I emphasize that word late but they don’t necessarily know what they don’t know. It’s been awhile. They’re very comfortable. They’ve they’ve been used to working with this person day in and day out for years. They come in every quarter but yet they’re not really sure what’s available out there on the market and how the market has evolved. They’re not sure whether their fees are appropriateetc. So this is really a we like our a person but we want to make sure that that firm that we’re working with really is worthy of our confidence. You know Greg when and when you’re out there there’s some things that drive the change that they come to come to light when they do take a left.
[00:09:41] You want to just cover a couple of those sure love to so one of the things that you mention is that the market has evolved and advisers today do a lot more than select and monitor investments they help with plan design with strategy with communications with many vendor management and producing education as well as one on one advice and assistance with government.
[00:10:07] There are some new trends those trends of advisers helping with financial wellness and really trying to drive participant outcomes.
[00:10:19] We recently worked with a Fortune 1000 a very large manufacturing company in the electronics area and they liked their advisor and that an advisor from a firm that does really great work. But what they discovered were doing this process is that that advisor has a lot more to offer than the services they were they were getting in through the process they were able to maintain their relationship but enhance both the services and the pricing of that relationship.
[00:10:51] Yeah so sometimes there’s a reason why seven years seems to be the big number because I think psychologically lines up with that quote unquote seven year itch sometimes we just get a little too complacent and it takes a refresh of a look at the market to understand what the best and brightest are current income and can offer let alone what’s out there in the space. And then of course the most obvious one is if things are broken if there’s something wrong clearly that’s going to be the impetus for an organization going to search.
[00:11:24] The other big category in this is a growing trend over the last few years.
[00:11:27] And Greg and I think this is probably our our second largest maybe even our largest reason that we’re seeing searches in the space is there’s been a big push in the industry to expand the role of the adviser in that of a manager. So it no longer does your advisor come in and consult to the committee and provide recommendations on how to run that karmically menu for their defined benefit plan investment as a consultant.
[00:11:58] They’re are actually now taking on the role of discretionary manager of where they’ll take the full responsibility for that wall. And a lot of organizations are doing so on the kill if you’ll notice on the bottom of the slide that they’re doing so because their advisor comes in and literally says hey I can now do this for you. And wouldn’t that be great. They give you all the reasons why it by the way just to give you an idea that we could probably do and we have done an hour long webinar on the difference between 321 consultants and 338 managers and why that happened. The reasons are many but the industry is marketing that recently right now so frequently the existing adviser comes in and suggests the change competitors are out there selling this as an enhanced service to try and get somebody to move from adviser to adviser. It’s happening quite a bit. I’m sure a lot of people who sit on this meeting right now and the process really ultimately revolves around the committee wanting to streamline and improve their investment process. They find themselves as not necessarily being the experts. That’s why they have to go out and hire an expert to advise them in the first place. And so really what they want to do is they want to move that decision on their plate under the experts plate legally and functionally so they can focus on the things that the committee can really drive impact on like the things that impact parties outcome. So that’s a big driver around why committees are doing this. And then the other big factor in all this the iPhone and this managers that are participating in the webcast I know this will be near and dear to your heart. It’s really the potential liability relief that comes from moving that relationship from a consulting relationship to outsourcing if you will.
[00:13:49] Those management decisions through a 338 manager and the protections that come from that under actually arrest a section 4 or 5 the one that really absolves an organization from their decisions investment decisions if they take this right. Left and I underline that there is a lot of misinformation in the space out there especially from those that are marketing trying to get organizations to move or enhance their services. But all you have to do is Hyrum 338 manager in order to absolve yourself from this responsibility. That is not true. You have to do it prudently. You have to monitor effectively and there’s a lot of stuff that had to have to be taken in order to do this properly and if they’re not taken then those four or five BE1 protections are not necessarily available.
[00:14:38] Joe you want to throw this up into the second poll.
[00:14:40] Certainly I would love to pose the second of our three polling questions and this follow up Jim on your discussion having to do with different scenarios. And so we want to do now is ask which of the following best describes or most accurately describes your company’s situation. You’re welcome to do is select the radio button that corresponds to your answer and then click on the submit button so we can record your response from top to bottom. The choices are very satisfied with our advisor but are due for routine check for that check up generally satisfied with our advisor but want to find out if our advisor is competitive. Not satisfied with our advisor services or fees and want to find a new advisor. Planning a transition following up on Jim’s earlier point from a 321 to a 338 and want to evaluate the market.
[00:15:35] If you’re not sure if this question doesn’t apply you can select the radio button next to. Not sure it doesn’t apply. We do ask that you do is select the radio button that corresponds to your answer and then click on the submit button so we can record your response we’ll give you a second or two to respond a second or two more to respond. That is and then we will summarize how you have responded and what is a parent. Is that among respondents. And this is something that that we want to make very very clear is that among respondents to this question what we can see is that a and this is quite interesting actually that a plurality plurality have indicated you are generally satisfied. Now that’s quite interesting. So that’s more than a third more than a third indicating that you are generally satisfied and the next most prevalent is very satisfied. I would note though that that is something that we do want to explore further is the extent to which there is an opportunity to move the needle. So merely being satisfied merely liking your advisor may suggest other opportunities and we will now do it in that context is continue our discussion.
[00:16:52] That’s great.
[00:16:54] And this is exactly what we see in our practice. It’s very rare that we get a phone call and somebody says hey something is really wrong here. Normally it’s that second category which is a business with this organization for a long time. We think we’re happy but we just don’t know what we don’t know. Sometimes by the way those organizations check their check in on the market and they’re income and they leave that relationship that that experience really confident. And now they move into that first category just because they’ve done that routine evaluation. So I want to go back to the to the 321 338 discussion just for a second it doesn’t look like we had a lot of respondents in that category. I just want to make sure that for those who are considering evaluating the market now for their existing relationship that at least cover the case law that they should know and can that as if you will take a break and look at this topic because 338 is a growing trend out there it’s a fast growing trend if you have already transitioned to it that you didn’t go through a competitive search. You should know that this case go all the way back to 1991 where the Department of Labor actually laid out the edict for hiring discretionary manager which is what a 338 manager is. And we actually also have given webinars on this. That can go an hour as well but they fall into three major categories that might be established and then the Department of Labor has supported all the way through. One is you have to have a prudent set of criteriai.e. you have to come up with an RFP or something similar for your search. The second is that you have to do an effective search of the market. You have to go out there and look at some opportunities and options. And then third is that you have to continually monitor how that 338 discretionary manager is performing. And we’re focusing on the first one real quick just to give you a spattering of things that they’re looking for but there’s a very long detailed list and again if anybody has a request we actually have a deck from one of these presentations or where we can send this to them and they have to be a registered investment advisor. You’re supposed to look at their assets under management. If you’ve got 500 million dollars in your forward plan you probably shouldn’t hire a firm that only has 700 million under management. You’re supposed to check CLient references so you’re actually supposed to be checking with the organizations already working within that capacity and then the most important thing is that you perform analysis and you look at their track records. This is kind of a sticky point that we’ll get into later when it looked when you’re looking at firms that are managing retirement plan menus. But the most important thing is is that if you’re using a 338 manager now you’re thinking of transitioning you should take this opportunity if you’re going to search to look at that marketplace because I think five years from now the vast majority of firms out there are extremely plain sponsors out there are using 338 discretion.
[00:19:51] And so if you’re hiring a new manager today or a new adviser today you at least want to know whether they can do this so you can transform transform your relationships to that so I’m not going to dig in too deep here I’m just going to let you know what we see over and over again in all of the rags that have come out of Capitol Hill.
[00:20:13] Arisia Section 4 4 8 which is the original fiduciary code if you will of the standards of care. And then the subsequent 2012 refresh to Section 4 AP to both cover and use the phrases over and over defraying reasonable expenses you’ll see reasonable expenses over and over and then reasonable and necessary services.
[00:20:41] So what you basically are getting consistently through the regs is the regs are saying that you as a planned fiduciary need to know that the services that you’re getting are reasonable. I mean basically that they have a quality to them and that they’re necessary to the plan. So the plan’s going to be paying for these expenses or your participants are paying for their their plans through the expense ratios of the mutual funds they have.
[00:21:07] Ultimately you want to make sure that the services are reasonable and necessary and then that the fees are necessary and all of the litigation and as Joe interviews Baduel a lot of class action litigation a lot of work for theU.S. Department of Labor as an independent expert. All the litigation constantly comes back into these rags and the interpretive bulletins out of the Department of Labor that reference these regs that really focus in on this so it’s there’s no question as to the duty to monitor that is expressed in the regulations. It’s it just comes out how they’re applied and the case law and I will also point out in a 2005 and then subsequently Ateso which is a subdivision of the department they were actually put out a guide on how to monitor plant traditions and you can find that on the Department of Labor web site as well.
[00:21:57] The last thing that I’ll bring to everybody’s attention which is you probably saw two years ago that a part of the Supreme Court finally did hear a case on this which is Martenot which was tiple the Eddison where the Supreme Court found that that plan sponsors have a continuing duty to mine over continuing duty to monitor them is the operative term and that you can’t just make a decision today that’s prudent and then forget it.
[00:22:27] And so this is now the new law of the land it elevated all the way to the Supreme Court. It has been heard and all the sub cases are mixed but districts are no longer being fought out. This is the law of the land and so we have to pay attention to what the Supreme Court said which is what’s really leading to this huge spike in search cases that we’re seeing price usque so if you were thinking about selecting evaluating your current provider or searching for a new one to know that there are a number of ways of going about it.
[00:23:06] You can do it yourself.
[00:23:08] You can do it yourself with help you can use a specialist oftentimes looking at doing it yourself can look like a daunting task and will spend some time in a minute looking at more detail on what this specific efforts is involved in evaluating and selecting an adviser.
[00:23:27] But it’s easy to understand why some organizations choose only to run on a fire request for information or to accept solicitors proposals. Caution against taking unstructured proposals from solicitors proposals that come directly from them are generally very marketing oriented.
[00:23:50] They’re filled with a lot more marketing than substance and don’t often help in making informed comparisons and decisions certainly don’t don’t have the due diligence that’s required when making that evaluation.
[00:24:03] Absolutely. And there’s a lot of help available over the last several years. More and more help has been available for organizations that seek to evaluate or select advisers. There are various tools and services that can offer plan sponsors help and those flows from a continuum from doing it yourself to outsourcing. You can benchmark your fees for a card provider using an online tool or even today their app based tools that allow you to do that.
[00:24:31] These tools are fast and easy and although they are fast and easy there are some concerns with using database driven benchmark tools for analysis. Just add just to talk about a few of those. They only evaluate fees and they don’t generally evaluate fees relative to services provided they tend to lack precision in comparing your company in terms of the scale and services and requirements that your plan has. And the last is that the information in the database may not be accurate or fresh in some cases the data is taken from publicly available form 55 hundred’s which don’t always get completed consistently or accurately with respect for fees. But we’re really excited about the growing number of online electronic tools for administering our. The courtyard PS The come a long way since I started in this business. I was once super excited about mailing out RFID on floppy disks and the industry’s come a long way since. Since then some of these examples are very well developed and they include a good set of sample questions very good due diligence questions and they often also include contact informations and suggestions for contacts for a host of providers that they have deemed qualified.
[00:25:54] These tools allow the do it yourself or the professional to disseminate our piece. They can be used to.
[00:26:03] Collect analysis review data produced results. All of that can be done online and they have some great appeal and the promise of simplicity I just want to offer a caution that technology is not always efficiency that particularly for the first time user may maybe the do it yourself or who doesn’t use these tools repetitively the effort to learn the system can eat into and exceed the time savings initially promised do you want to talk about benefit consultants.
[00:26:37] Yeah just you know I would I would just caution those. So there’s that there’s a lot of folks out there that can provide help in even some of them that will even run the RFP for you. But a lot of the ones that fall into the category of benefits are financial consultants may have a horse in the race.
[00:26:55] They may have a quid pro quo arrangements with another organization so they can do what we call the prisoner exchange in the industry. You just want to make sure that if you’re going to a third party intermediary who doesn’t specialize in this all the time and for that matter those who do that they are fully 100 percent aligned with your interests and not necessarily someone divided as a matter of fact Ziedan advisers out there that will run RFE for you. And then there’ll also be a candidate in the RFP and you can guess that that might not necessarily be the best interest of the plant entrepreneur.
[00:27:31] So we’re going to we’re going to have spending. You’ll hear that you’ll hear us talk about being independent and nonbiased. That’s that’s very important for us.
[00:27:38] I understand whether the specialists that you are looking at is biased or are unbiased.
[00:27:46] So we we suggest that if you’re using a professional whether using a search specialist or any professional that you take the time to check references even even going to your CPA an accounting firm or your attorney.
[00:28:01] They may even have favored nation status where they recrossed referring.
[00:28:06] So it’s really important to make sure that you’re getting an unbiased answer even if you have a really good experience with the service providers that have done other work for you. This is a very specialized area and you should see that they have done work in this area.
[00:28:23] So this is a picture of my desk and actually it’s really not a picture of my desk.
[00:28:29] I read writing an RFP for an advisor is a serious undertaking and it takes some effort. I run a lot of RFD and in addition to having a large pile of our Ps on and other such pictures on my desk. I also stagger my workload and deadlines to receive our piece no more frequently than every three weeks. But the volume of data is such that it requires that I commandeer a conference room. And a desk and use that as a war room for ten days or more per search. One of the things you can see if you look at this how large these are of PS are a good hour. People generally have over 75 pages in response to the questionnaire alone and in addition they’ll be at least that many pages if not double in exhibits and appendices you know as I mentioned administering and I’ve preferred adviser can be a daunting task. The figures that are shown here the 130 to 850 hours are not exaggerated in these estimates. We assume that there are six organizations responding to the RFP and only one staff member who’s doing ever lifting with four committee members selecting the finalists attending the finalists meetings and engaging in decision making and it takes that many hours. So what are the pieces of advice we like to give you is to make sure that when you’re doing this that you give yourself and your team enough time to do the job.
[00:30:00] Do not underestimate the time it takes to critically read and evaluate each RFP summarize the document and review your findings.
[00:30:09] And while we talk about the RFP templates and the generic RFP questions for due diligence that are out there we strongly recommend that you don’t send them out as is but you tighten them up to make sure that they are aligned with what your needs are. And that’s important because using generic questions can inflate the amount of time required. Important issues that were not addressed or may have been ill addressed in the responses are going to require you to ask for additional information and clarification. So again I’m going to stress this over and over the value of well written questions cannot be overestimated.
[00:30:50] And by the way we’ve had it organizations of where and this is just assuming that you’ve got one or two people at the organization that are actually reading through the earth. We’ve had organizations we know where all six rate committee members are reading every single RFP or at least all the are new proposals of all the finalists. And so when you see that kind of scenario you can actually be looking at 200 hours or more than a lot of those folks are you know what we call high dollar assets taking their time to focus on. So just be aware of the time commitment.
[00:31:28] Is as you’ll see here working with search specialists. You can save a significant amount of time you know through our experience.
[00:31:36] We’ve learned to understand committees the retired the considerations that have to be taken into account in the decision making process. And this lead to has led us to the development of being able to produce the city decision ready reporting strike documentation and to efficiently facilitate the process. The challenge that you’ll see with working with specialists is there the fee for their services.
[00:32:09] This is a sign that it’s not the exact same but I saw the sign once in a in a garage where they were doing mechanical work. And I think it works well in our industry as in the same in the same way doing yourself does not always have a lower cost. It can be cost effective if you have experience and good tools but if you’re as you know building the wheel and learning about building the wheel can be frustrating and expensive.
[00:32:39] We’ve seen a fair number of successful in-house searches but we also have experience with coming in late and having these these processes become more expensive for the organization that’s done it themselves.
[00:32:57] Yes. I’m not going to spend too much time here because I think that there wasn’t a lot of responded saying that they were contemplating going to search because they’re going to transition from 321 to 328 discretionary relationships but just in case you do make that evaluation going forward or for that matter you’ve already made that evaluation that’s really important. You may want to go back and regress to that decision. As I mentioned at one of the requirements and that Martonyi tower cases that you evaluate track record I’ll be very specific in this industry. There are no standards for what track records are or even how to compile them. We’re working on that right now. The CFA Institute is taking up that topic. We’ve got a conference we’re sponsoring and hopefully in the next couple years there will be. But in the very least that doesn’t excuse you from trying to evaluate track records in our practice we’ve come up with you know some sophisticated ways for doing so but in the very least you should address that evaluation and say that you manage it. It’s super important if you can evidence that you made an effort to comply with that requirement then you’ve got a pretty good you’ve got a pretty good stopgap for your.
[00:34:10] Bees are always top on on everybody’s list to look at and want to be sure that we provide you with some good tips some things that you can look at and consider when evaluating fees.
[00:34:23] first challenge that you’re going to find because these are challenging processes is that the structures of the fee structure of the proposals that you’re going to get are going to be different what their typical fee structure is usually a flat fee or a progressive fee progressive asset based fee. These are not the only structures that you may encounter. And there’s also can be a challenge finding all the fees.
[00:34:48] a challenge even for professionals organizations that provide proposals that may have commission based pricing or other pricing that create conflicts of interest should be avoided at all costs. Another important and other services which are included within the scope and what’s charged outside the scope of services that will have a large impact on your total costs. We strongly recommend that you consider all of the activities and tasks that you expect your advisers to undertake over three or five year period and have them priced it out so that you can have a reliable fee and expense budget for comparison.
[00:35:27] We also recommend that you think about changes that could be anticipated in your plan or companies demographics. For example a large increase or decrease in a planned population could have a significant impact on the fees. Some organizations fee structures may be more advantageous or disadvantageous under that scenario.
[00:35:49] The bottom line is model it out. Don’t just look at how much it’s going to cost today. Look at what it’s going to cost you down the road.
[00:35:57] Next few minutes to help you if you’re looking to do this in-house by yourself by sharing some tips and successes for avoiding pitfalls. Important to choose the right tool for the right job. For example benchmarks are great for general free range comparisons. If that’s all you need. Spending the time and effort on an RFP would not be well advised.
[00:36:16] Similarly we don’t advise advise making a higher decision solely based on an RFP.
[00:36:24] If you’re going to do it do it yourself in-house again don’t reinvent the wheel take advantage of all the tools that are available at lower cost well organize sample of peas with good due diligence questions are available from industry groups and advisory firms. We have a site out there we think that that’s a good starting point for you. We also strongly recommend creating a disseminating a spreadsheet with the RFP questions along with a word doc or a PDAF. This will enable you to concatenate each organization’s response into a single spreadsheet. So you and your team can have a side by side comparison.
[00:37:08] It’s also a great tool for having documentation of all the 75 pages or more of a questionnaire for each organization in one document. The spreadsheet can also be a great starting point for creating a summary report.
[00:37:26] From go just one quick caveat would be that if you go to an advisory firm or an advisory firm that you can’t do this this is a scenario that happens all the time and advisory firms then soliciting you to move over. You’re thinking about maybe evaluating your current provider and that advisory firm provides you with a template for an hour. That can be really helpful. But understand that it might also be self-serving maybe asking questions that are convenient for them and that are in that template and not necessarily hitting some with due diligence.
[00:37:57] So just don’t pick something stock from an advisor and then replicate Johnson.
[00:38:04] Ultimately when you’re out the face I just want to make sure that you guys are aware that there are pay for play arrangements out there some of the year for P E P providers that are out there actually are engaged in what’s known as paper play relationships where literally somebody has to agree to provide some of their feedback in order to be in their universe. And if you were to do something along those lines that’s going to eliminate organizations that might have a different ethical standard from even being considered.
[00:38:33] There are some of the pay providers and won’t even play in that region. Euclid This is the one that I always say and this is really advice from both people who are responding as well as those who are conducting the hour. If you’re going to do this yourself treat the RFP questions like the essay tease as if you’re grading them like the essay tease meaning that if you ask a question and the answer doesn’t exactly address the question you should ask for clarification or consider a potential dodge because ultimately sometimes it’s just accidental that they went off on a little bit of a tangent that you didn’t need. But ultimately when you ask a very detailed and specific question you should get a real clear answer. And as we say you know the truth in an hour the answer can be very hard to discern. You will see a lot of marketing spend that will try and duck in Dijon sidestep your answers if you don’t have a season. You might not catch it.
[00:39:28] And then lastly and this is the most important thing. When we when we do this for our clients we’re always asked to moderate final presentations. Ultimately we think that’s one of the most important things we bring to the table. Because when you’re doing a final presentation you’re not in as I say a spectator sport kind of situation. You don’t just sit back with the coffee in a doughnut and get pitched to this is a due diligence exercise. Do your research ask them questions about their proposals go into their EDV at their FEC disclosure documents and ask them hard hitting questions. There is your due diligence exercise. And so it’s really important to make to take advantage of that time. We also suggest that you that you provide a consistent agenda for everybody to follow. That gives them a roadmap if you will of the things that you want to consider.
[00:40:22] What do you like. Do you want a dog and pony show or do you want an apples to apples evaluation and comparison sites that spend the time preparing the finalists for meetings. Make sure they know exactly what you’re looking for. The winner of the assignment the person you hire shouldn’t be the what. The organization that made the best guess about like your needs are the one that actually that actually that they all understand your needs. If you’re not providing a tight structure for these meetings you’re going to get marketing marketing parking and you have specific needs and questions areas to compare and make sure you get these answers. If you don’t provide a structure and they don’t follow it if you absolutely do provide structure and they do not follow it expect that any relationship you have with them going forward will be exactly the same. You will not be getting what it is you ask for.
[00:41:18] We’ve brought in several times with organizations who literally will say you know part of the reason we’re doing this is because our advisor just doesn’t listen. They’ll have one or two things they’ve asked them over and over again and for some reason or other the adviser just not hiring.
[00:41:33] It’s a really good indicator if they don’t do it in the final presentation of the proposal is probably going to have that kind of a pattern in your relationship.
[00:41:43] And tips also for if you’re getting help with your adviser IVP you’re getting help with an Arpey will cost somewhere in the range of a midsize sedan.
[00:41:53] I’m pretty sure you wouldn’t buy a car without doing some research and hiring a professional while you don’t have to do an RFP to hire somebody to do an RFP. You do have to do some research and part of that is important to know the scope of services that you need in one of the things you learn in having interviews with potential providers is that those discussions will help you develop an appropriate scope of services again. Sometimes we don’t know what we don’t know and we strongly recommend you check your experience a color reference get a recommendation from other service providers. You’ve worked with whatever scope of services and fiduciary standing is as reported that they will have you should get that in writing.
[00:42:40] Yeah I mean I can’t underline this enough. When you’re hiring you don’t need to do an RFP to run an hour to run an hour. I mean you know at a certain point you just hire somebody.
[00:42:51] But you should type them more than one potential solution provider whether it’s maybe look an entire solution and talking to a consultant they’re talking to your attorney and a consultant what have you. But this is the big thing if you call their references you’re going to learn a lot. This is not a standardized device tool. This is not a standardized experience. The people who go through this process either through the RFP solution or with help are really going to tell you a lot about whether they got a lot out of this situation or not. Again I’ve just been underlined some of the things you’ve heard them but we think that they are very very worthwhile and repeating because we want to make sure that everybody gets left with with these these contacts that make sure if you are seeking advice whether it’s electronic it or whether it’s going to your attorney or your CPA even sometimes by the way. This is another big one. A lot of times you’ll go to your record keeper and say hey who can help you with this. Who are some good advisers that are out there. You’re not necessarily going to get unbiased advice from any of those folks and you want to make sure we all remember the Brady Bunch episode where Greg bought the old jalopy car that was really cool looking. It’s caveat emptor let the buyer beware. You want to really make sure you’re asking yourself am I getting this list on buyers.
[00:44:16] You know ultimately I want to emphasize that again if you are going to are currently working with a 338 discretionary manager are you thinking about doing so in the future.
[00:44:26] Make sure that you take painstaking effort to meet these Department of Labor edicts. And if you’ve already hired one maybe go back and look at that process because if you do not that four or five the one safe harbour you know fiduciary liability shedding that is so often pitched in the industry and sold in the industry to move to these services that may not be there for you as the protection that you think it’s you have mentioned in other areas several times.
[00:45:01] But when you’re doing research by yourself or using a specialist make sure the proposal becomes part of a written service agreement and offer make sure that all the statements that were made in a finalist presentation or other conversations that has any regard to fees and services that they get documented. And we you know in our experience in doing this because we’ve done this a lot. We negotiate through the entire process negotiate negotiate negotiate and you can take that same approach as you go through the process.
[00:45:36] You can ask for service guarantees ask them ask them to put their fees online. Think think why those lines are. I have to tell you we just went through a very glaring example with a big big name provider who stated their fee in the finals presentation. We asked them a very specific question is this the only thing that you receive. They said yes we really were very suspicious about it. We went back through due diligence and found out that in fact their total amount of compensation from other sources was going to be more than double the number that they said at the meeting so pay very close attention to that.
[00:46:14] So a good a good search protest is going to provide you a lot of a lot of other benefits you know in addition to selling the compliance requirements for selection evaluation the search process is going to help the committee the staff and ultimately are participants a good process should leave you better better educated more secure in your governance. It should also give you an opportunity to stand back think strategically about the plan about your investment line up communication and the value of the overall benefit.
[00:46:45] Importantly since it’s a requirement to perform some analysis and this analysis takes significant time and effort it makes sense to get the absolute most you can out of the price.
[00:46:59] Yeah besides just the search itself there’s just a lot of great benefits that come from this. All of our committees that go through this process even if they stay with their incumbents which is increasingly more and more they come up with great ideas from the other proposers that they can then fold into that relationship with the folks that they’re already working with.
[00:47:18] So as you go through this process it’s not just the search it’s not just the checking the box or finding a new adviser you will leave this search process a better committee with better understanding and probably a better suite of services.
[00:47:36] We’re really grateful for the time that we got to spend with you today and we’re hoping that the time that you spent with us today has been valuable and that we have been able to help you get a better understanding of the regs and the case law that that’s driving fiduciary decisions that you’ve expanded your knowledge of what to expect and you understand some more routes that you can take to evaluate existing and potential advisors.
[00:48:04] So we want to thank you today today I want to turn it back over to Jeff.
[00:48:09] Thank you very much Greg. And Jim we’re not going to pose for the third of our four polling questions and our third or fourth point questions asks if you are planning an advisor evaluation. What’s the biggest reason. What’s the primary reason what you’re welcome to do is select the radio button that corresponds to your answer and then click on the submit button so we can record your response from top to bottom. The choices are following the rules. We want to be compliant with the rules. Want to check the markets for fees and services. Concerned about litigation. I’m not satisfied with or don’t even have heard advisers or if you don’t know or if you’re not a fiduciary that’s fine. You can select the radio by next to the choice the bottom choice.
[00:48:50] We do ask that you do is that you select the radio button that corresponds to your answer and then we ask that you click on the submit button so we can record your response to the question. If you are planning an advisor evaluation what’s the biggest reason. What’s the primary reason. What we will do is give you a few more seconds to respond then reveal and summarize how you have responded.
[00:49:09] That we’ll answer some great questions that we’ve received that you have conveyed and so just a few more seconds and then we will reveal how you have responded. I would acknowledge that even as we look at the results coming in half for those of you who are for whom this question is applicable what is apparent is that a a plurality so close to a quarter of respondents let’s say has indicated that you want to check the markets for fees and services. That’s a plurality for whom this question is applicable. What’s interesting though is the next most prevalent response is compliance. So that’s something we want to keep in mind as we address some great questions from attendees and indeed we have received some great questions from attendees. The first question which I would like to direct first to you Jim and then Greg an attendee asks Do you know what kind. And you can give a ballpark he asks you know what kind of savings percentage of savings that say one can see of total planned assets for example from conducting an RFP is that you know well. So Greg I’d love to hear your perspective and then Jim have your perspective and then Greg.
[00:50:26] Yeah. So I think you probably give the same answer to both of us which is it’s very case specific. I’ve run I’ve run searches where the answer is zero and we’ve been Proops services or some contract language far more often.
[00:50:39] Those are the rare cases. But we’ve seen savings typically in the 40 percent range and it really falls along the lines of If you’re with an ather based structure those numbers can go up because obviously assets have gone up quite a bit over the last few years. And I would say if your advisor relationship was priced in the last let’s say three years or less you’re probably going to see slightly lower savings unless less you didn’t get our feet you didn’t go to our. I have no idea. But if your advisor relationship is seven years or nine or 10 years one year while you’re going to be looking at something and those 40 percent plus ranges but it’s really case case in even if you don’t end up realizing really great savings then you can actually check that part and move forward competently for the next X number of years. But knowing that you do have a really efficient relationship. So it’s really a win win no matter what you uncover but almost always we end up in Peru actually always we end up approving the situation through the process.
[00:51:40] Yeah I want to double down on something that Jim said which is that if you haven’t done a search for five or seven years your your assets in your plan have probably grown tremendously and generally the the way that these services were priced five or seven years ago was asset based. And so if you if you add another zero to your plans. Ballard says it doesn’t have. It doesn’t add another zero to the amount of effort that it takes to do this work. So you can realize some significant savings there.
[00:52:24] Thank you very much. Greg and Jim Jim I wanted to follow up I know. When introducing you we acknowledge that you’re an independent expert for theU.S. Department of Labor an expert witness for aggressive litigation. And with that in mind I wanted to ask what Jim and what litigation you see coming down the pike and especially given you know our earlier discussions that there are certain risks that organizations may not be aware of. So I wanted to provide that. I wanted you to provide that framework for companies understand what medications you see coming down the pike what they ought to be aware of potentially.
[00:53:03] Yeah. So I can’t speak specifically about cases that I’m actively involved in.
[00:53:08] And and for that matter I can’t get too specific about my opinions on certain things that are encases because believe it or not the plaintiffs attorneys and their defense attorneys are listening and frequently things that I see on conference calls and in meetings like this get thrown back at me. So I have to be very delicate about how I approach it. But what I can tell you is in this space right now there is a very high profile very high profile cases that are being litigated presently that are that have standing that are moving forward where the experts that are involved are arguing that as often as three years if you can believe it or not a plant should be going to market. For the record keeper and advisers. So I’m not going to get into a judgment as to what that number is whether it’s right or wrong but I will tell you that that’s it being argued. But if the number that’s being argued is three you can bet that as we start getting into five and seven and ten. Those are the areas that the litigators are with something to look at these cases are moving down markets and getting phone calls. I used to get a request to be an expert witness probably once every six months and the cases were always huge. I literally in the last month they got four phone calls from attorneys. The cases were getting smaller. So it’s not just fees. It’s how often organizations are going to market that’s now being called into question. I can also tell you very specifically that there are cases being litigated right now that have moved forward again withstanding. In other words they made it through the motion to dismiss phase which means that the courts deem that there’s some merit to what’s being proposed that when you hire a discretionary manager again we go back to that 338 topic if you are hiring a discretionary manager that a that you know the validity excuse me for lack of a better term of of that managers hire their prowess their experience whether or not that was identified and evaluated properly and track records are being thrown out. As as you know issues within sight these cases and so I think we’re gonna see an increase more and more and more of the litigation around turning discretion over especially because we actually have a lot of discretionary cases back from when profit sharing plans and defined benefit plans were dealing with this issue 30 years ago. Those issues probably apply to 428 plans and giving discretion to running a plan.
[00:55:39] Well thank you very much Jim. Certainly something to to watch and I appreciate your sharing your expertise and Greg as well. Now before we conclude we do want to pose our fourth polling question and our fourth polling question is the following. We want to find out from attendees is an opinion question. How often do you think new Sherri’s should run an adviser areF.T. something that they’re satisfied. So what you’re welcome to do is select the radio button that corresponds to your answer and then we ask you click on the submit button so we can record your response from top to bottom. The choices are every three years every five years every seven years every 10 years or more. And if you don’t know that’s fine you could select the radio button or if you’re not a fiduciary you can select the radio button that corresponds to the bottom choice. But we do want to find out is how often in your opinion you think fiduciary should run an adviser RSP assuming that they are satisfied. And again we want to give you just a few more seconds to respond. We’ll then summarize how you have responded and then what we’ll do is wrap up to your recap the choices from top to bottom every three years every five years every seven years every 10 years or more. And if you don’t know if you’re not a fiduciary you can select the bottom choice. We’ll give you just a few more seconds to respond. We’ll then summarize how you have responded and then what we will do is is wrap up or at least if we do have time we may have time for an additional question. But I think at this juncture I think we’ve planned to wrap up what we can see from among respondents to this question by the way is quite interesting in that and it could be that this webcast has influenced your thinking. What we can see from among respondents and this is this is quite interesting actually is that a plurality have indicated. Every every five years. So what that suggests is and and if we look at a majority a clear majority so around 60 percent or 3 out of five respondents have indicated. Every five years at most perhaps even every three years so that’s an interesting set of responses perhaps reflecting what do you learn from our Web guest. And with that in mind I do want to thank our very distinguished guests and also let you know what will follow from our webcast.
[00:58:02] First of all I’d like to know that this webcast will be available on demand at the start of next week within the webcast section of CFO dot com. At that point you’ll be able to view and listen to a streaming archive of our webcast as well as download a PEF document comprising slides more webcast click on a link to view information about upcoming events that offer the opportunity to hear from Amit finance leaders in person and if you are eligible if you’ve answered at least three of the four point questions during our web guest retrieve your certificate. Also at the very end of our webcast we will invite attendees to complete an online feedback survey that you will be able to view if you’ve turned off your pop up blocker within your web browser.
[00:58:39] And as always we appreciate your feedback. I would like to thank Jim and Greg once again for an engaging and informative discussion. And I want to thank attendees for joining us for a webcast. Thinking about evaluating your company’s for one key advisor what finance leaders need to know. Brought to you by Argylls the publisher of CFO Magazine and CFO dot com and sponsored by North Pier. We thank you for your time and we hope you enjoy the rest of your day.