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Category: Fiduciary (Page 2 of 3)

University of Litigation

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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!

Fiduciary Dilemma: Is your Clearing Firm transferring their risk to you?

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On September 26, 2016

In Fiduciary, Fiduciary Oversight, Fiduciary Responsibility

In the Financial Services Industry, it is not enough to fulfill Fiduciary obligations in isolation. Business partners must be committed to this standard as well. Clearing Firms and associated technology must enable a Fiduciary to meet client obligations.

Like Employer Sponsors of Retirement Plans, Registered Investment Advisors (RIAs) are responsible for monitoring investment “content” and provider oversight. Each provider agreement must be reviewed carefully as it has a tendency to morph in heightened regulatory environments.

Predictably, attempts to transfer various types of risk become visible during contract renewals or amendments. Without warning, terms like “custody,” “technology integration,” and “client data” become legal ambiguities and justifications to shift risk to the Independent Broker Dealer or RIA. These risks are inherent to their business. Are Clearing Providers no longer responsible for custody, settlement, payments, wire transfers, and their own business partners that facilitate these functions?

The Fiduciary has a legal and ethical duty to oversee the integrity of their business partners to protect the interest of their clients. According to Black’s Law Dictionary a Fiduciary is a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. Is your Clearing Firm enabling you to do so for your clients?

Litigation Failure: White vs. Chevron Corp

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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.

Fiduciary Herein Granted

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On September 9, 2016

In Current Events, Fiduciary, Fiduciary Awareness, Fiduciary Responsibility

Is there any doubt what the Founding Fathers intended in the very first Article and Section of our Constitution?

“All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.”

HEREIN GRANTED which indicates possessing only specified or enumerated powers whereby the stated body CAN NOT claim an unlimited, inherit, or elastic authority to legislate. Our government wields only such power as the people ENTRUST to it.

As to entrust and to accept, a specified office or Fiduciary Duty involving trust. In matters of right, sovereignty, legality, and crucial advice should anyone accept anything less than Fiduciary Herein Granted? Could accountable Fiduciary Relationships be the brick and mortar to the sustainability of a relationship? Company? Nation? Herein Granted!

Fiduciary Oversight

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On July 27, 2016

In Department of Labor, ERISA, Fiduciary, Fiduciary Awareness, Fiduciary Oversight, Fiduciary Responsibility, Retirement Plan Design

Establishing a Retirement Plan, in itself, is not a fiduciary action but a business decision. However, by implementing a plan one is acting on behalf of the plan and in these actions one may be a fiduciary. For example, hiring a service provider in and of itself is a fiduciary function.

Acting prudently with regards to oversight is a critical responsibility under ERISA but not engrained in the culture of Employer Sponsored Retirement Plans and the Investment/Brokerage business. The culture has been compensation and product spread driven for decades. In fact, it doesn’t seem as if fiduciaries are aware of others who serve as fiduciaries which can leave them vulnerable to participate in another fiduciary’s breach of responsibility.

Oversight can be demonstrated by following and documenting a formal review process visible through technology. This is what the regulatory authorities are asking for.

Fiduciary Virtuosity

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On July 19, 2016

In Fiduciary, Fiduciary Awareness, Fiduciary Responsibility, Financial Planning

Fulfilling a Fiduciary Obligation is not a solitary achievement but one that is habitually executed. It can only be defined as a virtuous act of both trust and accountability made visible when someone has placed their client’s goals before their own. But is it also a virtuous expectation?

Many professions have to be practiced with standards of excellence that originate through evidence based evaluation of judgment. It is reasonable to conclude that a client of someone calling themselves a Financial Advisor would expect that these moral and virtuous standards are executed by putting their interests in the forefront. Who else’s goal is to be actualized?!

Is there really any other way to help people reach their goals and/or another expectation that a client should have?

A Robo-advisor is not a Fiduciary

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On July 7, 2016

In Fiduciary, Fiduciary Responsibility, Financial Planning, FinTech, Millenials

A robo-advisor cannot put “its client’s interests before their own” because it has no interests.

Goals are determined by a series of questions and responses are driven by algorithms. It is algorithmic suitability.

There is no subject master expertise, insights or wisdom, and there is certainly nothing proactively propulsive with regards to future market activities and/or change preemption.  There is no behavioral coaching.

Trust is a perception based on rational reflections about the future. Can a Robo-advisor have rational reflections about the future or just statistic generalities?

There is nothing wrong with a Robo-advisor.  However, before getting what you pay for you have to know what to pay for.

 

Fiduciary vs. Proxy vs. Advocate: For whom are they biased?

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On July 5, 2016

In Fiduciary, Fiduciary Awareness, Fiduciary Responsibility

A proxy is a person authorized to act for another.

An advocate is a person who publicly supports or recommends a particular cause or policy.

Both can create a funding bias by creating a tendency for originating studies and conclusions that support the interests of the study’s financial sponsor. The reciprocity trait in human nature can sometimes fuel this further by compelling a person to return favors.

Aside from a trustee, the only person who maintains an ethical and legal relationship bound by trust who prudently takes care of assets for another person or entity is a fiduciary.

Are your partners proxies for someone other than you?

Are your partners advocates for a firm or industry that compensates them?

Is your partner a legal fiduciary or are they biased toward another’s goals?

Fiduciary Avoidance Through Mixed Messages

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On June 29, 2016

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

The public at large has been inundated with marketing messages that herald individualized advice that is highly personalized and based on the client’s interest. However, when this message is substantiated in a mutual agreement it is completely disclaimed in the form of a footnote so that it doesn’t serve as the primary basis for investment decisions.

Other times advisors clearly receive compensation for recommending specific products though that guidance is considered “general education.” Confused by mixed messages and the regulatory structures that govern retirement assets?

Internal Revenue Code provisions state that any person paid to provide advice on the investment of IRA assets is a Fiduciary. The rulemaking authority is the Department of Labor and the enforcement authority is the IRS.

ERISA pertains to Retirement Plans and states that any person paid
directly or indirectly to provide plan officials or participants with
advice on the investment plan assets is a fiduciary. Both the
rulemaking and enforcement authority is the Department of Labor.

Are these messages mixed?

Retirement Plan Fiduciaries: A Storm On the Horizon

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On June 16, 2016

In Business Planning, Department of Labor, Fiduciary Awareness, Fiduciary Oversight, Fiduciary Responsibility, Retirement Plan Design

It seems Retirement Plan Sponsors should be taking their Fiduciary Duties more seriously or the legal community will.

The decision, in itself, to select an Investment Advisor, Record-keeper, Administrator, etc. is a fiduciary action. While the Financial Service Industry is focused on fees, commissions, exemptions, and conflicts of interest, the Fiduciary Responsibility of oversight seems to be lost in the equation.

Sometimes, the evidence of history can be seen in our courts. As of now the fear focus seems to be on allegations of excessive fees, commissions, and conflicts of interests. However, Retirement Plan Sponsors should be focusing their concerns on allegations of oversight and/or lack of prudence. Litigation storm clouds are gathering over the documented plan Fiduciaries for not monitoring either the investment options via analytic evidence or for not monitoring the performance of those parties assisting the Fiduciary for monitoring the investment options. If the correct facts and allegations supporting propositions directed at the proper defendent trend, expect a “cloud burst” of legal activity against Retirement Plan Sponsors.

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