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Category: Fiduciary Awareness (Page 1 of 3)

The Fiduciary Spectator

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On May 18, 2017

In Department of Labor, ERISA, Fiduciary Awareness, Litigation

“Do you find out how the pitcher is throwing by asking the fan in the stands or the batter who was in the batter’s box.”

Attorney Firms continue to be spectators in a sport that requires experience to win. It is clear by the allegations:

“…. accuses them of self-dealing to promote the firm’s mutual fund business and maximize profits at the expense of the plan and its participants.”

“…. accused of forcing its employees into expensive, poorly performing mutual funds….”

“…. caused participants to pay recordkeeping and administrative fees that were multiples of the market rate available for the same services.”

If ERISA of 1974 established standards of conduct and requirement for disclosures why do law firms continue to base their allegations on outcomes instead of breaches of behavior?

Before filing a case where there may be Fiduciary Breaches, Law Firms ought to seek a “batter” who has Subject Matter Expertise in:

. Portfolio/Wealth Management techniques/analytics
. Financial Technology; providing visible evidence of methodology

Breaches in trust are not the same as contractual breaches though the DOL seems to be trying to appease the culture via the BICE.

Until Attorney Firms seek help from those who have the skill sets to uncover the required portfolio and oversight methodologies before the filing, they will continue to be but a spectator in this sport.

Fiduciary Prologue to a Cross-Examination

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On May 11, 2017

In Current Events, ERISA, Fiduciary, Fiduciary Awareness, Fiduciary Oversight, Litigation, Regulatory

The litmus test for suitable behaviors and the products that result, is woven from Fiduciary Responsibility. Breaches are born from a lack of methodology which materializes in behaviors and product selection. Perhaps these behaviors are best characterized in Trust Law which describes the prudence, commitment, and loyalty that the trustee has for the beneficiary of the asset.
According to Black’s Law Dictionary, a trustee is:
“The person appointed, or required by law, to execute a trust; one in whom an estate, interest, or power is vested, under an express or implied agreement to administer or exercise it for the benefit or to the use of another.”

In addition, Fiduciary Duty is:

“A duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person. It is the highest standard of duty implied by law (e.g. trustee, guardian).”

The fulfillment of Fiduciary Duties becomes apparent where there is evidence of behaviors and methodology, in “content and oversight,” that improve the likelihood that the beneficiary of the asset(s) achieve their goals.

When one is compelled to discover evidence of fiduciary behaviors, clues materialize in the products that were purchased, the timing of the purchases, how such products meshed and correlated with other assets, the level of compensation, and any compensation relationships if applicable. If these facts were not transparent to the inquirer then, chances are, they weren’t to the beneficiary of the assets. Thus, the path of behavior and methodology discovery will extend and fork to include oversight.
Expert Witnesses and Subject Matter Experts
Even though there are many attorneys disciplined in ERISA and Class Actions, few have any experience in money management, financial technology, and the application of the law to fiduciary matters. That is why attorneys need assistance from Expert Witnesses and Subject Matter Experts before the case is filed.
Choosing the right experts can be a daunting task especially when the correct questions to ask are not known. Career consultants and Business Advisors are very good at methodology, modeling, and quantifying evidence. Many, however, have only “kept score from the stands” and have never “stepped into the batter’s box.” There is a clear difference between those who have applied their skill sets in different environments and those who quantify the opinions of people that do. In addition, it is probably best to seek assistance from someone who has been a fiduciary as opposed to someone who hasn’t. This is also critical in the cross examination.

Class Action: The Case Against JPMorgan Chase

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On February 7, 2017

In Current Events, ERISA, Fiduciary, Fiduciary Awareness, Fiduciary Oversight, Fiduciary Responsibility, Litigation

A Class Action suit has been filed against the fiduciaries of JPMorgan Chase’s 21 billion dollar Retirement Plan on 1/25/2017.

Typical to most of these cases, it is “a class action brought pursuant to §§ 409 and 502 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1109.” This is a lengthy complaint that describes a lot of investment content that includes the following allegations described in two counts:
. “failing to adequately review the investment portfolio..”
. “retaining proprietary funds…. despite the availability of nearly identical lower cost and better performing investment options.”
. “failing to affect a reduction in fees..”
. “failing to offer commingled accounts…. despite their far lower fees…”
. “the Defendants breached their fiduciary duties by failing to adequately monitor other persons..”

Causation, as described in the complaint, was “because substantial assets of the Plan were imprudently invested.”

There seems to be a lot of content and outcome evidence in this Class Action and a reference to the assets being held in a trust (which is mandated by ERISA). To this author, there does not seem to be an obvious statutory definition to Trust Law in our Courts. Perhaps it was never codified. However, trustee duties regarding the assets entrusted to him/her are characterized through judicial creation by the courts and the ensuing regulations. In a Trust relationship, rights are created and the behaviors owed by the trustee to the beneficiary that adhere to those rights are characterized. It seems to me that if Fiduciary Duties are characterized by the behaviors that are owed by the Trustees the causation of the breaches should focus on a lack of or a misguidance of those behaviors instead of outcome. Where market outcomes cannot be controlled, fiduciary behavior can be.

“The Class Action Holiday Season.”

By

On December 23, 2016

In Current Events, Fiduciary, Fiduciary Awareness, Fiduciary Oversight, Fiduciary Responsibility, Litigation, Retirement Plan Design

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

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On December 19, 2016

In Department of Labor, ERISA, Fiduciary, Fiduciary Awareness, Fiduciary Responsibility, Regulatory

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?

Fiduciary Focus #2 of 3: Fiduciary Drift: Content

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On November 14, 2016

In Department of Labor, ERISA, Fiduciary, Fiduciary Awareness, Litigation

Black’s Law Dictionary defines prudence as the following:
“Carefulness, precaution, attentiveness, and good judgment as applied to action or conduct. That degree of care required by the exigencies or circumstances under which it is to be exercised.”

A Fiduciary will drift in judgement when the focus is returns. Perhaps this occurs due to a lack of understanding in Wealth Management, Financial Planning, and fiduciary cognizance. For someone untrained, returns can be disguised as beta without consideration to volatility.

Investment options should be chosen and be consistent with the stated and visible goals of the plan while increasing the likelihood that the participants achieve their goals. For most asset classes and capitalizations, it becomes difficult to justify the expenses of active investment managers because few consistently outperform passive indexed investments. If active money management is chosen, there has to be a visible methodology that proves why. There have been Class Actions where this has been the basis.

The fundamental duty of the fiduciaries of a Retirement Plan is to adhere to the terms of the plan, to take reasonable care of the assets, and to act in the best interests of the participants. If this sounds vaguely familiar to the Fiduciary Duties of a trustee for a Trust, it should. ERISA modeled it that way. I wonder if the success rates of Class Action Suits and DOL Actions would improve if Employer Sponsored Retirement Plans were defined as trusts in the complaint and then characterizations are made about Fiduciary Duty and breaches.

Fiduciary Ethics: Removing Conflicts of Interest

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On October 29, 2016

In Department of Labor, Fiduciary Awareness, Fiduciary Oversight, Fiduciary Responsibility

Removing conflicts of interest is a recognized and necessary ethical behavior. So much so that the U.S. Office of Government Ethics (OGE) is dedicated to overseeing the executive branch’s ethics programs, programs whose primary function is to prevent and resolve conflicts of interest. To give you an idea as to the size and scope of this endeavor, there are approximately 4,500 full-time and part-time ethics officials who work in the executive branch that try to provide employees assistance in identifying and resolving potential conflicts of interest.

The OGE’s mission is to create public confidence in the impartiality of government decision making by improving transparency, increasing accountability, and making sure that senior leaders are making decisions based on the interests of the public rather than their own personal financial interests.

The Department of Labor’s clarification attempts to define and enforce the required ethics that bind human behavior in governance where Fiduciary Duty and Responsibility is mandated. It is no different than the OSE’s mission, 18 U.S.C. § 208, or, ultimately, the Constitution.

Fiduciary Focus #1 of 3: Conduct not Outcome

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On October 25, 2016

In ERISA, Fiduciary Awareness, Fiduciary Oversight, Litigation, Regulatory

The most successful Class Actions under the Employee Retirement Income Security Act of 1974 (ERISA) against Employer Sponsored Plan Fiduciaries will uncover behaviors that are detrimental to the participants of the plan. Behaviors, not products or product outcomes.

If, under ERISA or Trust Law, Fiduciaries must act solely in the interest of participants then there must be visible evidence of loyalty and prudence. Only by examining the conduct and methodology of the Fiduciaries can it be determined whose interests were paramount and if a breach of duty has occurred. Once a behavior is suspect it, perhaps, is better to investigate possible causation based on the visible evidence or lack thereof. Walking through “the valley” of causation, is not a journey that a CPA or Attorney should be embarking on alone. They have little experience in the proper conduct and methodologies required to complete the journey.

Outcome may foster presumptions of prudence. Conduct and allegations supporting propositions MUST appear in the complaint.

Next two blogs:

Fiduciary Drift: Content

Fiduciary Drift: Oversight

University of Litigation

By

On October 5, 2016

In Fiduciary, Fiduciary Awareness, Fiduciary Oversight, Litigation

Since August 1st, twelve Class Action lawsuits were filed against universities for breaches of ERISA Fiduciary Duties:
Yale: $3.6 Billion Assets under management (AUM), 37,939 participants
NYU: $4.2 Billion AUM, 24,164 participants
Columbia: $4.6 Billion AUM, 27,000 participants (there are two separate lawsuits)
Cornell: $3.1 Billion AUM, 29,452 participants
U of Penn: $3.88 Billion AUM, 26,904 participants
Duke: $4.7 Billion AUM, 37,939 participants
Johns Hopkins: $4.3 Billion AUM, 24,561 participants
Vanderbilt: $3.4 Billion AUM, 41,863 participants
Northwestern: $2.87 Billion AUM, 33,015 participants
USC: $2.19 Billion AUM, 28,423 participants
Emory: $3.66 Billion AUM, 51,797 participants

Here are some allegations:
. No competitive bidding process
. Excessive fees
. Underperforming mutual funds
. Duplicative mutual funds
. Incorrect, more expensive (sometimes Retail), Share Class

Class Action is in session!

Litigation Failure: White vs. Chevron Corp

By

On September 13, 2016

In Current Events, Fiduciary Awareness, Fiduciary Oversight, Retirement Plan Design, Uncategorized

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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