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Retirement Planning > Retirement Investing

A New Way to Bid for the 401(k)

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Is that $20 million 401(k) engagement worth all the hours you’ll have to put into an RFP to win the gig?

It may be that retirement plan advisors have no other recourse since plan sponsors are increasingly relying on much dreaded requests for proposal in order to document their procurement process.

That reality, and the extremely cumbersome nature of retirement plan bidding, led Ariana Amplo to launch InHub, an online RFP tool that matches plan sponsors with advisors who can service their plans, while cutting out many of the hardships associated with the solicitation process.

Amplo, who co-founded the eRFP system with partner Kent Costello, conceived the idea based on firsthand experience in retirement plan business development.

Working for Morgan Stanley’s institutional arm, Graystone Consulting, she and Costello worked on plans ranging from $20 million to $1 billion—on both the servicing and prospecting sides.

Responsible for business development, Amplo found in her seven years on the team that the “larger the plan the higher the likelihood that the investment committee would hire through an RFP,” she recalled in a phone interview with ThinkAdvisor. “It was difficult and I didn’t like it for many reasons.” 

The essential problem for the advisors was that they didn’t know if it was worth their time. That is because the RFP typically revealed little about the process — “was the company really planning on making a change or just kicking the tires?” Amplo asks — yet asked hundreds of questions, including many repeated questions asked only slightly differently.

Adding to the cumulative burden, many plan sponsors would send physical RFPs, requiring the advisor to retype everything in a Word document, after which the advisor would need to print and mail an entire book, along with multiple addenda, to 7 or 11 committee members.

“Archaic,” in a word, is how Amplo describes the process.

But then she observed a still more worrisome trend.

“Every year that [plan] size kept coming more and more down market; pretty soon $5 million and even $1 million 401(k) plans sent RFPs in the e-mail to compete for the plan.”

There were no more mere on-site interviews for smaller accounts. In the space of just five years, Amplo and her team found that $1 million was the new $1 trillion in terms of the hoops one had to jump through to procure new accounts.

“For me, I was surprised that it came that far down market,” she recalls. “I was happy that small companies were forming investment committees and understanding they did have a fiduciary responsibility to follow a prudent process; I loved that small plans were soliciting business through RFPs.”

But she saw that not only was the process was onerous for advisors, but its burdens discouraged many plan sponsors and similarly ill served plan participants.

Many plan sponsors who have yet to join the RFP wave avoid doing so because they are reluctant to spend so many hours of their investment committee’s time for a cumbersome manual and offline process, Amplo says.

“They may also not be hiring the best advisors because they don’t know whom to invite to the process,” she adds.

And worse, Amplo says the RFP hassle discourages change even when the need is pressing, with companies reasoning:

“Even though we want to change our advisor — we’re having service issues, or a fee issue, or they want to hire an advisor for the first time but they don’t have time to go through the RFP process properly — that’s where we’re trying to reduce the friction.”

In other words, an advisor may be charging excessive fees or providing sub-optimal investment choices and not get fired because of all the hassle — despite a company’s responsibility to document fiduciary care for its retirement plan participants.

InHub seeks to ease the process for plan sponsors — the startup’s primary target audience — and secondarily for advisors by bringing the process online; providing a streamlined list of questions for the plan sponsors to ask the candidates; and even by providing a list of advisors qualified to service large plans.

That last service is critical to professionalizing the process since companies often don’t know which advisors to invite to bid on the contracts.

“They hate asking committee members for names, which end up being brothers-in-law, friends, members of their church,” she says. “If they google [candidates], the people who pay the most for advertising get called up first; or they refer the advisors who cold-called them.”

InHub can get around the brother-in-law problem through the index it is developing of top-notch plan advisors.

To qualify, the advisors must service at least 20 institutional plans and have at least $500 million in institutional assets. If a candidate meets these standards — which would put him in the top 2% of retirement plan advisors — the next step is a phone interview and if they again pass muster, they fill out a questionnaire about their fees, participant education programs and the like.

Amplo tells of a firm that ran both a 401(k) plan and a 457 plan totaling about $20 million in assets that was seeking an advisor willing to drive to their location, conduct participant education, and had experience with both types of plans.

“We were able to easily get them five qualified candidates,” she says.

Amplo stresses, however, that the plan sponsor can invite any advisor they like — including those that don’t meet InHub’s standards — to participate in the screening.

Indeed, advisors who prospect plan sponsors could benefit from referring the firm to InHub.

“We also had a situation with a beta client who came to us with two candidates they wanted to invite into the process. One was a group that referred them to our system; the other didn’t recommend an RFP, but wanted [the firm] to hire [the advisor] directly,” she says.

The hiring firm was less than impressed with the advisory firm seeking to circumvent a fiduciary process and ended up hiring the firm that recommended being screened through InHub.

The Chicago-based company derives its revenue from the fees it charges plan sponsors. There is no cost to advisors seeking a place on its list or bidding on a plan, though “if an advisor were to be hired and didn’t have a relationship [with the plan sponsor] prior to hiring, they pay us 25% for one year — a typical referral arrangement,” Amplo says.

InHub has been running its beta program for four months now, and plans to operate full bore at the start of 2015.

“Holistically, better plans … really start with better advisors, and better advisors are hired through better RFP processes,” Amplo reflects. “Our goal is to take this extremely cumbersome process off the back burner and onto the forefront … so plan sponsors can get the job done without delays and hire faster. We hope that becomes the new norm.”

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