The Hidden Fiduciary Risk in Long-standing Vendor Relationships

Many plan sponsors take pride in maintaining long-term relationships with service providers.

It’s not unusual to hear statements like:

However, from a fiduciary perspective, longevity alone cannot substitute for periodic evaluation.

• “We’ve worked with them for years.”
• “They understand our organization.”
• “They’ve always taken good care of us.”
• In many cases, these relationships are productive and mutually beneficial.

Why Long-term Vendor Relationships Are so Common

Benefit plans are complex programs involving multiple stakeholders, regulatory requirements, and employee expectations.

Once a service provider demonstrates competence and trust, sponsors often prefer stability over disruption.

Long-term relationships offer advantages:

These benefits are real. But they can also create blind spots.

• Institutional knowledge of the organization
• Familiarity with plan design and employee demographics
• Established communication channels
• Operational continuity

How Familiarity Can Reduce Oversight

Over time, relationships tend to shift from structured evaluation to informal trust.

Sponsors may begin to assume that:

This is where fiduciary exposure can develop, not because something improper occurred, but because the evaluation process gradually disappeared.

• Fees remain competitive
• Services remain aligned with market standards
• Vendor incentives remain unchanged
• Recommendations remain fully objective
• Without periodic review, these assumptions may go untested.

What Changes Over Time in the Market

Even when a vendor relationship remains stable, the market around it does not.

Over time:

A vendor that was highly competitive five or ten years ago may still be effective, but that assumption should be validated periodically.

• New service models emerge
• Technology capabilities evolve
• Fee structures shift
• Industry consolidation occurs
• Ownership structures change

Why Courts Focus on Process, Not Loyalty.

In fiduciary matters, courts and regulators rarely focus on how long a relationship has existed.

Instead, they focus on questions such as:

But without evidence of periodic review, it can be difficult to demonstrate that the arrangement remained prudent over time.

• When was the last formal evaluation conducted?
• Were alternative providers considered?
• Were fees reviewed relative to the market?
• Was the evaluation documented?
• A long-standing relationship may be entirely appropriate.

What Periodic Evaluation Actually Looks Like

Periodic evaluation does not necessarily require constant disruption or frequent vendor changes.

Instead, it may include:

The goal is not to replace vendors unnecessarily, but to confirm that existing relationships remain appropriate.

• Independent benchmarking of fees and services
• Periodic RFP processes
• Documentation of evaluation criteria
• Review of compensation structures
• Governance discussions among plan fiduciaries

Compensation Transparency Is Becoming More Important

Strong vendor relationships can be valuable.

However, fiduciary responsibility requires sponsors to balance loyalty with oversight.

A relationship that has been validated through objective evaluation is far stronger, and far more defensible, than one that continues primarily through familiarity.

The Bottom Line

Longevity in a vendor relationship is not a problem.

The absence of periodic evaluation is.

Sponsors who combine stability with structured oversight are better positioned to demonstrate that their decisions remain prudent over time.