Certified Plan Sponsor Professional (CPSP) Practice Exam

Which best practice is important when selecting a service provider?

1. Determine whether they have proper licenses and experience

2. Choose based only on lowest fees

3. Rely solely on personal recommendations

4. Ignore the provider's past performance

The correct answer is: Determine whether they have proper licenses and experience

Determining whether a service provider has proper licenses and experience is crucial in the selection process for several reasons. Firstly, licenses ensure that the provider complies with legal and regulatory standards relevant to their services. This compliance is critical for maintaining industry credibility and protecting the plan sponsor from potential legal issues. Experience, on the other hand, often correlates with a provider's ability to meet the specific needs of the organization. A provider with a proven track record demonstrates not only their competence but also their capability to handle various challenges that may arise while servicing a plan. This includes knowledge of industry best practices, familiarity with relevant financial products, and an understanding of the market dynamics that could affect the plan’s performance. In contrast, selecting a provider solely based on fees may lead to compromises on quality and service levels. Dependence on personal recommendations can introduce bias and may not sufficiently evaluate the provider's qualifications. Ignoring past performance can lead to overlooking critical insights into how a provider has managed similar client relationships and challenges. Therefore, assessing licenses and experience addresses both compliance and performance metrics that are essential for a successful partnership with a service provider.