Willing Fiduciary

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Month: December 2016

“The Class Action Holiday Season.”

Class Actions I bring

To Fiduciaries of your plan

Glad tidings of litigation

And a happy New Year!

Fiduciary Litigation made its appearance during this holiday season as 4 new Class Actions were filed against the following institutions:

. Starwood Hotels & Resorts
. Delta Air Lines
. Fidelity Management Trust Co.
. Putnam Investments

In aggregate, the following claims were made:

. Failure to make sure that Plan fees were reasonable
. Failure to offer a Stable Value fund
. Revenue sharing whereby kickbacks were made for including particular funds in the menu of investment choices
. Incurring unnecessary management fees by offering passive index funds which held other passive index funds (double layer of fees)
. Lower cost investment options were available; incorrect share class
. Excessive record-keeping/administrative charges
. Redundant investment options
. Retained historically underperforming investment options
. Excessive indirect compensation through revenue sharing
. Poor performance in Stable Value Fund
. Self-dealing

These claims seem to focus on performance outcome, fees, and compensation. The Fiduciary Relationship between a Plan Fiduciary and its Participants can be defined by the behaviors and duties that the fiduciary has for the participants. Interesting enough, I did not sense any motivations to focus on breaches of Fiduciary Duty via a lack of visible oversight and methodology as the causation of outcome.

Fiduciary Culture Shock

Some may argue that The Department Of Labor’s clarification on fiduciary responsibility is complex. It seems that this rationale is focused on the industry’s willingness and ability to adhere to it.

Some may argue that the regulation clarification is not complex at all. ERISA has existed for 42 years and Trust Law for far longer. Perhaps the fiduciary behaviors that are required to fulfill the intricacies of the required duties pose a challenge to the prevailing culture. Did the regulation suddenly become complex after 42 years?

Is the regulation complex or did the regulation expose a generation (or two) who grew complacent in not putting their clients’ interests first?

Wells Fargo: Another Class Action Filed

A new Class Action was filed against Wells Fargo on 11/22. The lawsuit accuses Wells Fargo of using their own Target Date Funds as the Qualified Default Investment Alternative (QDIA) even though they underperformed other Target Date Funds while having much higher expenses. The complaint also stated that this “generated substantial revenues for Wells Fargo” and provided “critical seed money that kept the funds afloat by boosting market share.”

It should be reiterated that ERISA requires that retirement assets are to be held in trust. To be consistent with Trust Law and a trust relationship, behaviors are dominated by the fiduciary duties owed to the participant. The fiduciary must remove all conflicts of interest and provide visible/transparent evidence that their behaviors were in the best interest of the participant.
It is not enough to only accuse, in proposition and allegation, that Wells Fargo breached their fiduciary duties. The plaintiff must do more than demonstrate higher fees. It must be proven that Wells Fargo failed in prudence, loyalty, and trust by not placing the interest of the participants above theirs.

Successful Class Actions will have to exhibit Subject Matter Expertise by proving that the defendant did not have a sound visible methodology to determine investment options and, thus, both the returns and likelihood that the participants will satisfy their retirement goals were reduced.

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