A Request for Proposal (RFP) is a questionnaire designed to gather the necessary information to help your organization select the ideal investment partner. Having a well-defined RFP process helps ensure you are asking the right questions to the right candidates and streamlines the selection process.

Through our experience completing hundreds of RFPs over the years and working closely with dozens of nonprofit investment committees, we’ve identified the following 5 pitfalls to avoid when issuing an RFP for investment management services:

Pitfall 1: Winging It

A clearly defined RFP process serves as a roadmap laying out the necessary steps, timeline, and goals for finding your investment advisor.

A good RFP process should involve these steps:

• Outline your organization’s objective for retaining a new investment advisor and what you expect to gain from the relationship
• Craft an RFP questionnaire (download investment management RFP template)
• Curate a list of qualified firms
• Send the RFP questionnaire and collect responses (download RFP scorecard)
• Review responses with a consistent framework to identify the 2-3 respondents you will interview to potentially hire

Tip: Start by considering when you would like to engage a new investment advisor, and then work backward to set the timing for your RFP process.

Pitfall 2: Failing to Establish an RFP Committee

It’s smart to assemble a team to lead the RFP process and facilitate the decision by the investment/finance committee and/or board.

Here are some tips to consider when creating an RFP committee:

• Keep it small, ideally three to five people
• Have representation from various stakeholders of the organization
• Include individuals who understand the specific needs and goals of the investment advisor relationship
• Select a leader who will quarterback the effort and keep the process on target

Pitfall 3: Not Pre-Qualifying Candidates

Inviting too many respondents may overwhelm your RFP committee. Side-by-side evaluation of responses gets more difficult as the number of submissions increases. Some initial screening upfront - including online research, peer networking, and brief introductory calls with advisor candidates - can help identify those firms that meet most of your organization’s needs.

Tip: Keep the list of candidates short, preferably 5 or fewer. Limiting the number of candidates may motivate firms to submit higher-quality RFPs and make comparing proposals easier.

Pitfall 4: Asking Too Many Questions

Remember that your team has to review each response to each question from every investment firm to which you send the RFP.

Ask the right questions rather than as many as possible. Spending time upfront structuring the RFP will encourage better and more complete responses and make comparing proposals easier.

Tip: Start with a good template like our RFP Template for Nonprofit Investment Management. Construct your RFP with questions that fit your organization and avoid asking about topics of little concern. (For example, ask questions about alternative investments if your oversight group has no intention of investing in them.)

Pitfall 5: Lacking an Evaluation Scorecard

There will likely be a wide variety in the responses you receive regarding length, detail, and overall tone. An evaluation framework is key to addressing this lack of uniformity so that each respondent is judged using the same criteria. A scorecard can be a useful tool to collect and organize the assessments of the individuals who are charged with the RFP review process and help minimize bias and emotion. It drives a more systematic evaluation and allows reviewers’ scores to be looked at side-by-side and aggregated in order to average scores.

Tip: An effective evaluation should result in 2 or 3 candidates your committee wants to interview for potential hire. The same scorecard can be used again to rate managers during their final presentations. (see eCIO’s sample investment management RFP scorecard).

Have Questions?

eCIO is privileged to serve nonprofits across the country as a fiduciary partner. We manage organizations’ valuable assets and help them further their important missions. Whether you’re establishing a new investment program or need help managing an existing portfolio, eCIO’s nonprofit investment advisors are here to help! Schedule a 15-minute meeting today.