Willing Fiduciary

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The Fintech Beneficiary

Many industries utilize technology for analytics, research, efficiency and speed, and solution discovery. In addition, we often use technology to record and quantify the behavior of others. Less obvious, however, technology provides visible evidence of the behavior of the user of the technology.

In fact, by reverse engineering one’s technology usage the user’s philosophies and intentions can materialize. Outcome can provide suspicions but it does not evidence prudence and “reasonableness,” necessarily, and certainly not in a court of law. Intent is evidenced in behaviors and this is really what the DOL’s Fiduciary Duty clarification of ERISA of 1974 wants the Financial Services Industry to demonstrate.

Financial Technology’s greatest accomplishment will be realized when it is an acknowledged path to demonstrate that providers’ behaviors truly put clients’ interests first.

Fiduciary Comprehension: Demonstrated By Asking The Right Questions (or not)

DOL tries to clarify QDIA regs on annuities in TDFs


It can be argued that, sometimes, one can determine how well something is understood by the type of question asked about the subject.

In this article, it is clear that TIAA was concerned with their current use of annuities within their Target Date Fund product as a Default Investment Option.

This was the DOL’s response….
In the spirit of that effort, the letter says that “nothing in the existing QDIA rules stands in the way of a plan fiduciary making a determination that it would be prudent to default participants into a TDF featuring an annuity.”

The letter notes that “prudence requires plan fiduciaries to engage in an “objective, thorough and analytical process” when selecting a TDF with an annuity as a default investment in a 401(k) plan.”

“The cost of the annuity, the specifics of the liquidity limitations of a given annuity, and the demographics of participants in the plan must be considered by prudent fiduciaries.”

“Sponsors must consider the extra communication efforts necessary to adequately educate participants on the liquidity limitations of annuities.
Ultimately, whether a TDF with an annuity feature qualifies as a QDIA depends “on the facts and circumstances” of a specific plan.”

The DOL is, once again, more concerned with the visible behaviors of the fiduciary as demonstrated through an “objective, thorough, and analytic process” while considering the “demographics of the participants and “considering extra communication efforts (disclosure) necessary to adequately educate participants.”

Simply, the DOL is stating…”Provide evidence that the use of annuities in your Target Date Funds is in the participant’s best interest.”

Did the entity making the inquiry understand the spirit of the regulation? Did the regulator really provide any additional guidance?

Litigation Failure: White vs. Chevron Corp

Even though the allegations may be sound, the conclusions may not be supported with the sufficient facts “to infer that the fiduciaries had breached their fiduciary duties.”

Though the plaintiffs have until September 30th to amend the complaint, such is the recent case, White Vs. Chevron Corp.

The plaintiffs argued:
. the wrong types of investments were offered rather than “others” (they offered investments with higher expenses/expense rations while similar investments were available with lower expense/expense ratios)
. there were revenue sharing relationships based on AUM (as the plan grows, the charges increase) instead of a per participant basis
. failure of oversight (a poor performing investment option should have been removed earlier)

These are all sound reasons that cause “suspicions or inferences of fiduciary breaches” but none are demonstrative that one has occurred. Conclusive evidence must be provided as to how these allegations prove that the participant’s interest didn’t come first in content and oversight.

This story exemplifies the reasons why Attorneys need someone with experience in Portfolio Construction, Financial Technology/Analytics, and Legal Application expertise to support their allegations.

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