Case Study: Custodian Review Drives Lower Fees for More Services

The case study below describes Aon's partnership with a nonprofit health care organization to complete a custodian review to create lower fees for services. Continue reading the case study below to learn more about this partnership and its outcomes. 


 

The Situation

A nonprofit health care organization with balance sheet assets and pension plan holdings of $2 billion combined had not reviewed the custodian marketplace in approximately 10 years. Because so much time had passed since the last review, the organization was no longer confident it was maximizing the services available from its current custodial provider.

The nonprofit’s ERISA counsel, therefore, recommended that it engage with an independent third party to complete a custodial review and provider evaluation.

The nonprofit selected Aon’s Custody Advisory Services group to perform an invoice analysis using its Global Historical Fee Engine. This assessment was completed at no charge.

The analysis revealed that, by Aon’s estimate, the nonprofit client’s current custodian fees exceeded current market rates by $250,000–$300,000 annually. 

The Solution

In situations where noticeable service deficiencies are not present, Aon’s Custody Advisory Services team usually can harvest a portion of the projected savings directly through negotiation. We believe negotiations are the most viable option when the projected savings are minimal.

But since the estimated savings in this case exceeded 35%, Aon recommended that the nonprofit client issue a request for proposal (RFP) for custody services.

An at-market RFP is an excellent tool to help maximize savings and optimize service level offerings. Current market conditions have created an ideal environment in which to review the marketplace and confirm its custodians’ service offerings. And undertaking an RFP does not mean clients must leave their current custodian—in fact, 65% of the Aon clients that conducted an RFP in 2018 retained their incumbent custodian.

In this situation, the client decided to engage Aon to complete an at-market custodian RFP consulting project for three reasons:

  1. To determine whether its current custodian’s level of services was best in class
  2. To harvest the estimated custodial savings
  3. To complete an independent third-party evaluation of its custodial provider, as recommended by the nonprofit’s ERISA counsel

Aon’s Custody Advisory Services team issued the RFP and reviewed the responses, so the effort required from the client was minimal. The process and timeline are outlined below1

The Result

Through discovery interviews with the nonprofit client and its custodian, the Aon team reviewed all the services the client had been receiving, along with their associated fees.

During initial discussions with the client, it became apparent that many of its current custodian’s new service and technology offerings had not been effectively introduced or implemented including automated reporting and an introduction to/training on the updated version of the custodian’s top of-the-line client portal. Additionally, through the RFP process, the client was made aware of several additional services it had not been taking advantage of, such as a benefit payment online participant portal.

The RFP was used as a highly effective tool to enhance and augment the level of services received for the most appropriate market fee. As a result of the project’s findings, the client realized over $320,000 in annual savings.


About Aon

Investment advice and consulting services provided by Aon Hewitt Investment Consulting Inc. (“AHIC”). The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto.

This document is not intended to provide, and shall not be relied upon for, accounting, legal or tax advice or investment recommendations. Any accounting, legal, or taxation position described in this presentation is a general statement and shall only be used as a guide. It does not constitute accounting, legal, and tax advice and is based on AHIC’s understanding of current laws and interpretation.

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon AHIC’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. AHIC disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. AHIC reserves all rights to the content of this document. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of AHIC.

Aon Hewitt Investment Consulting Inc. is a federally registered investment advisor with the U.S. Securities and Exchange Commission. AHIC is also registered with the Commodity Futures Trading Commission as a commodity pool operator and a commodity trading advisor, and is a member of the National Futures Association. The AHIC ADV Form Part 2A disclosure statement is available upon written request to: Aon Hewitt Investment Consulting Inc. 200 E. Randolph Street Suite 1500 Chicago, IL 60601 ATTN: AHIC Compliance Officer © Aon plc 2019. All rights reserved.

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