The Do’s and Don’ts of Releasing a Request for Proposal (RFP) for your Municipal Defined Benefit Pension Plan

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“I have been a money manager consultant for over 37 years and have consulted for numerous institutional pension funds. I have answered hundreds of RFP’s and done hundreds of money manager interviews. Several years ago, I came up with the idea of “RFP Referee”. I was seeing many institutions struggling with the task of issuing an RFP for their pension funds because they didn’t have the time, understanding or resources to decide who should advise on their pension investments. What I would like to do in this series, is walk pension trustees through the entire process of executing an RFP. I’ll share some observations and funny stories from my experience over the years.”

Chris Englebert, Founding Partner & Chief Investment Officer

1. Make sure you have a good reason to initiate an RFP for your pension funds

Sitting on a pension board and acting as a pension trustee is a very difficult job. Most individuals don’t have the financial background necessary to handle their personal finances let alone a multi-million-dollar pension fund. This is not to say that the average person can’t be a good pension trustee. I certainly believe they can because one of the most important traits of a good trustee is common sense. Many people feel overwhelmed when investment professionals come into a pension meeting and use all their financial terms and industry jargon. In its simplest form, managing a pension fund is all about how much money the fund can make to pay pension benefits and the cost to have the funds managed.

Many times, we see new pension board members come on and want to “make their mark”. This is often the underlying reason an RFP is done. As a pension trustee, you must understand who all the players are. Are you doing an RFP for a pension consultant who oversees all aspects of the pension fund? Are you doing an RFP for a money manager who is handling one of the investment strategies for the pension fund? Maybe you are doing an RFP for a new custodian or actuary. A pension trustee needs to understand how all the different investment professionals that run the plan work together. Over the last 15 years there has been a move to the Outsourced Chief Investment Officer (OCIO) model. This means the OCIO pension consultant will set asset allocation, hire money managers and make all the decisions without input from the pension committee, except on a limited basis. This may or may not be a model that your pension fund uses. Understand how your pension fund is run.
Unfortunately, over the last 10 years we have seen more and more RFP’s issued because of political reasons. This is especially true in the public sector when an election takes place.

Another reason we see an RFP issued is because of investment performance. Remember, every pension plan has different funding objectives and needs. If the investment markets have a big pullback like 2008, many pension trustees feel they must “do something” because their pension fund has lost money. The fear of missing out when investment markets do very well is another veiled investment performance issue that we saw in 2019, which was a good year in both the bond and equity markets.

The other impetus for issuing an RFP is cost. During the last 15 years, there has been a race to the lowest cost pension provider. Several pension consulting firms have seen their assets explode higher because they market themselves as only using index funds. They use these funds to get the costs to the plan as least expensive as possible. Pension trustees need to understand all aspects of costs for their plans. They should know the costs for custody, investment services and consulting services. The pension consulting business is very competitive, and all the consultants are in a narrow band for costs. Using cost as the sole reason to issue an RFP can skew the focus of what the investment objectives are for the pension fund. Over the years, I have found that the pendulum swings from active management to index strategies. Limiting the investments to only index funds and focusing only on plan costs can cause periods of underperformance for plan investments. Many active managers charge a higher fee because their investment performance is better.
I believe there should be two main drivers for issuing an RFP. The first being any change in your existing provider’s company structure. Over the last 10 years, many of the large consulting firms have been subject to a buyout or were merging. This should be an automatic trigger to initiate an RFP. Pension trustees need to understand how their current provider and the change they are undergoing will compare with the rest of the pension consulting firms and the services they are providing. The majority of the mergers in the consulting space are creating larger and larger consulting firms. Pension trustees should understand whether they will be a small fish in a big pond or if the reason for the merger was to improve the firm they are currently using.

The second motivation to be considered is a periodic review of the current pension consultant. I have recently seen a municipality issue an RFP because in the 26 years they have had their municipal pension fund, THEY HAVE NEVER SEEN WHAT ELSE IS AVAILABLE! Now this is an extreme example. On the other end of the spectrum, some funds issue an RFP every three to four years just to see what’s out there. Although this may sound like good due diligence, many of the firms responding to this type of RFP will see its purpose as just to “check the box”.

2. Who Do You Want to Respond to Your RFP?

Before pension trustees can undertake an RFP for their pension services, they need to understand the different players. The question needs to be asked, who do you want to answer your RFP? There are traditional pension consulting firms that write investment policy statements, do asset allocation studies, perform money manager searches and do performance reporting. This still requires the pension board to interface with the pension consultant and to be responsible for some major investment decisions. These decisions may involve what asset classes to be invested in. What is the plan’s overall investment asset allocation? How are the investment strategies going to be implemented?  As I mentioned, there has been a move to hire Outsourced Chief Investment Officer (OCIO) consulting strategies. This means the consulting firm that is hired literally does everything. They set the plan’s asset allocation, hire or implement the investment strategies and make changes all without consulting the plan trustees. This is an important point to consider. Some pension funds can’t attract individuals with the necessary experience needed to sit on a pension board. Sometimes, the municipality may have a turnover in personnel, which makes it difficult to provide continuity from the pension trustees’ perspective. In certain instances, the OCIO model makes sense. However, the question becomes, has the OCIO consultant become just another money manager? You may have your pension trustees interview money managers. In the past, many pension funds had only one money manager who ran both a stock and bond portfolio. Sometimes, an old idea can become a new one.

One issue I see is when consulting or investment firms pressure pension trustees to put out an RFP so the local guy can respond. This is someone who may know a pension trustee on a personal level and is throwing a “Hail Mary” pass in hopes of getting a major account. I’ve seen totally unqualified advisors or companies respond to an RFP and then put political pressure on to get considered.

The other question that many pension trustees need to ask is, who is going to write the RFP?  I’ve seen municipalities circulate around the same RFP that one pension fund has used in a previous search.  Many times, the pension fund may employ their legal counsel to write the RFP. I’ve seen numerous poorly written RFP’s. Questions are asked which have no relevance to the current pension fund. Sometimes the same question is repeated several times in several different places within the RFP. Sometimes RFP’s are written to be slanted towards a certain type of firm and can end up excluding some good candidates. Many times, the number of clients and assets that the respondents should be consulting for is set artificially high to exclude a company that otherwise might be a good fit.  A poorly written RFP wastes both the reader’s time and the consultants who are responding. More importantly, the pension fund trustees may not get the results they are looking for.

Once the RFP is written, pension trustees must determine how long the time frame to respond should be.  Three to four weeks is plenty of time. Many of the firms responding have staff in place to respond to an RFP.

How do you want your RFP responses to come in?  Some request only one electronic copy and just one written copy. The real question is, who is going to review them all?  Requesting 12-15 hard bound copies so that everyone can see the RFP results in a pile of books that no one reviews and looks especially overwhelming. Technology lends to more and more electronic copy requests, which seems to satisfy the ability for everyone to review the RFP. The best RFP story I can share is one that just happened recently. I wrote and issued the RFP for a $26 million dollar defined benefit plan. I requested one electronic copy and one hard copy. One of the firms that submitted their response was well known. However, when I went to schedule their phone interview, I searched through all 88 pages of the RFP and could not find ANY contact information. The two principals who submitted the RFP response had their name displayed, but no phone numbers, no email address, nothing. I finally did an internet search and had to call an 800 number for their company to get their phone numbers and email address. I left several voicemails and sent multiple emails requesting additional information for the RFP. I NEVER RECEIVED A RESPONSE. As unbelievable as this sounds, it actually happened!

Some RFP mistakes can be pretty funny. I was working on a project where we wrote an RFP for another large defined benefit plan. All the responses came back in plenty of time. However, one respondent RIGHT ON THE COVER PAGE had the correct pension fund name, but in the TITLE had another municipality’s name. As I read through the RFP, I found two additional sections where the “cut and paste” didn’t work. Wrong name. Obviously, if a consulting firm is this sloppy with their RFP response, it is hard to recommend them going to the next round.

Once the RFP is written, pension trustees must determine how long the time frame to respond should be. Three to four weeks is plenty of time. Many of the firms responding have staff in place to respond to an RFP.

3. Narrowing to your RFP Finalists

It will be apparent after reviewing the RFP’s submitted who the players are in the pension consulting world. However, pension trustees really need to ask questions as to whom they should select as their finalists. Many times, selections are based on the lowest price submitted. I see this all the time and pension trustees should realize that firms will try to “buy the business”. Think about it. If you have a large pension consulting business, you can afford to low ball your fee just to get the business. Ethically, I have a problem with this. A consulting firm that does this should really be offering the same fee to their legacy accounts. I am also particularly hard on firms that answer an RFP with a low-ball price because of the increase in value of the investment markets over the last 10 years. If you think about it, the long-term bull market in equities has helped these firms see a tremendous increase in revenue since many of them quote their fee in percentage of assets. This means that the firm has seen an increase in their fees without really doing anything for it. This is a double-edged sword because when assets drop in value, so will their fees. Have they earned their consulting fee by helping a pension fund protect against a drop in the value of pension assets?

Another determining factor in narrowing down respondents is that pension trustees “heard the firm was good” or “another municipality next door uses them”. This herd mentality can be dangerous. I reviewed a pension consulting firm who uses an aggressive asset allocation with a high percentage of equity exposure. Every single one of the plans they consult for, no matter what the size, has the exact same asset allocation model.  The actuarial needs of the fund, the ability of the municipality to fund the plan, or even the risk tolerance of the pension trustees, no matter what, every plan is run the same. When the equity markets decline sharply like they did in 2008, they explain it away by saying “everyone lost money”. While this may be true, too aggressive of an allocation that causes a major pension fund asset decline can really hurt the recovery of that plan, especially if they don’t have the tax revenue to fund the plan.

Pension trustees really need to understand that respect and professional courtesy are needed. I’ve seen pension trustees “blow off” interviewing some very competent firms because they didn’t like the way the RFP presentation was formatted, or they had heard “something” about the firm. Pension trustees should try to limit their preconceived notions about a firm until they interview them.

4. In-person interviews - some are really good, some are bad

The question I always get is how many firms to interview. Interviewing only 2 or 3 firms is not enough and interviewing 7 or 8 firms may be too many. I have done RFP projects where we scheduled six firms for a full day of interviews. Each firm got 45 minutes and what I asked them to focus on, is not a review of the RFP, but what makes them different and why the pension fund should hire them. This is a big undertaking and pension trustees will be exhausted by the end of the day.

The in-person presentations and some of the glaring mistakes can be amusing. Recently, we had an in-person interview with a firm who brought three presenters. The main presenter was the lead consultant and they also brought an administrative person, which was a smart move. However, they brought a third “body”. This turned out to be hilarious because when one of the pension trustees asked that third person what role or experience he had; the answer was “none”. It was obvious that this firm just brought in another person as a seat filler.

In another instance, a consulting firm came in to make a presentation. The main presenter was male and dominated the entire presentation including fielding all questions. The other person from this firm was female and was given no chance to speak. In this era of gender equality, this was a very tone-deaf approach to their presentation.

The funniest presentation of all might be one that I recently witnessed.  They brought a handout, but it was unbound. When the multiple pages were slid across the conference room table towards the pension trustees, an air conditioning blast sent the papers flying all over!  Ten minutes were wasted scrambling for all the pages, now on the floor, and putting them back in order.

A solid in-person interview can really bring a good RFP response to life. Competence in the RFP response is reinforced by competence displayed during a presentation. I favor presentations that outline problems their consulting firm has faced with a client in the past and how they worked through them. This gives prospective clients a chance to witness the thought process of the firm being interviewed.



The real question that pension trustees should ask themselves is how these firms being considered are going to make your pension fund money in the future. Many pension trustees don’t take the time to understand the consultants’ process and how it can benefit their fund. This lack of understanding can cause a default to the lowest price because the decision is overwhelming.

You really need to look behind the screen to see if the consulting firm is offering you a customized investment approach and strategy for your pension fund or a cookie-cutter investment model they use for all of their funds. Competence and problem-solving abilities will outweigh the cheapest vendor in the pension consulting world.


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