Selecting the right investment manager to handle your portfolio or retirement plan assets is one of the most important financial decisions you can make. Sending out requests for proposals (RFPs) to potential managers is an effective way to evaluate your options and make an informed decision. In this article, we will explore what exactly RFPs are, what makes them useful for evaluating investment managers, and some best practices for creating and analyzing them.
RFPs provide a structured way to compare investment managers
An RFP is a detailed questionnaire that lets you collect consistent information from different investment management firms you are considering. This makes it easy to objectively compare factors like their investment process, performance track record, fees, and client services. Without RFPs, you would have to piece this information together from each manager’s website, promotional materials, and one-off conversations. The consistent RFP format facilitates an apples-to-apples comparison.
RFPs reveal critical details about an investment manager’s offerings
A well-crafted RFP enables you to dig deep into an investment manager’s capabilities, practices, and background. You can include questions about their team’s credentials, how portfolios are constructed, performance benchmarking methodology, risk management strategies, reporting procedures, and more. The RFP responses will highlight any gaps or shortcomings of a manager compared to your needs and preferences.
The RFP process helps assess investment manager fit
In addition to filling out your questionnaire, responding to an RFP requires significant time and resources from investment management firms. This helps assess how interested they really are in your business, and whether you fit their target client profile. Firms that spend time tailoring their responses to you specifically show greater commitment. You can also evaluate their communication skills, attentiveness, and professionalism during this process.
Create targeted RFPs aligned with your objectives
The quality of the RFP process depends heavily on the questions you ask. Your RFP should address your specific portfolio, account sizes, investment objectives, preferences, restrictions, and concerns. This will reveal which managers are best equipped and most eager to handle your needs. Prioritize questions around performance, risk management, fees, and client services.
Analyze RFP responses for best fit
Once RFP responses are in, scrutinize them side-by-side to identify the optimal investment management partner. Look beyond performance numbers to assess philosophy, process, risk controls, fees, and responsiveness. Conduct follow-up calls with your top choices. The RFP process takes some work upfront, but the insight it provides into finding the right investment manager is well worth the effort.
Sending RFPs to prospective investment managers provides a structured process to evaluate and compare them in depth. Carefully crafting and analyzing tailored RFPs aligned with your specific needs makes it more likely you will find the ideal manager to steward your investment assets.