The most common reason for a vendor search is because of a service problems (surprise, surprise). The question is whether the problem is a short-term issue or a long-term issue that requires a change.
What are the potential signals?
§ Mistakes in record keeping and/or compliance - and no apparent clearly-defined or timely plan for addressing the root causes.
§ No service calendar and/or service standards not met. Missing target dates for significant items such as issuing statements for more than two quarters - and there appears to be no plan to solve the problem.
§ Vendor personnel turnover – or worse, you can’t think of anyone’s name.
§ Participant complaints about service - and not corrected by vendor(s) within a reasonable amount of time.
§ Questions go unanswered.
§ You’ve lost confidence in the vendor’s ability to deliver quality service.
§ There seem to be few or no changes in your fund line-up despite continued underperformance – it’s then you discover you don’t have an Investment Policy Statement (IPS), which should spell-out the metrics for inclusion.
§ Your vendor has a proprietary fund requirement, i.e., a certain percentage of assets must be invested in a certain family of funds.
§ The expense ratio is well above the median for it’s peer group.
While you can simply conduct a competitive analysis of your service providers’ current fees and/or service levels, it may still be advisable to conduct a search (Request for Proposal, RFP), especially if it’s been a few years since the last one; and the reason is simple: Fiduciary obligation. It’s always better to be proactive rather than reactive. Proactive fiduciaries don’t wait for a problem to materialize; they find and document their discovery and correction process before some else does it for them.
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Jim Lorenzen is a Certified Financial Planner™ and An Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional. The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization. More information is available at www.indfin.com.