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.
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.
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:
- To determine whether its current custodian’s level of services was best in class
- To harvest the estimated custodial savings
- 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.
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.
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