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Category: Financial Planning

“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.

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.

Fiduciary Oversight

By

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

By

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

By

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.

 

Retirement Plan Fiduciaries: A Storm On the Horizon

By

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.

Fiduciary Simplicity

By

On June 11, 2016

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

“Under ERISA and the Code, a person is a fiduciary to a plan or IRA to the extent that the person engages in specified plan activities, including rendering ‘‘investment advice for a fee or other compensation, direct or in direct, with respect to any moneys or other property of such plan.”

“In particular, under this standards-based approach, the Adviser and Financial Institution must give prudent advice that is in the customer’s best interest, avoid misleading statements, and receive no more than reasonable compensation.”

Is there any reason why a person seeking retirement guidance, from someone receiving compensation for providing that guidance, should have some other expectation?

Why The DOL Fiduciary Regulation Was Revised

By

On June 9, 2016

In Department of Labor, ERISA, Fiduciary, Fiduciary Awareness, Regulatory, Retirement Plan Design

The Employee Retirement Income Security Act of 1974 (ERISA) was established as a federal law. One of its intents was to provide a sense of Fiduciary Responsibility for those designated as Fiduciaries defined, in action, as those who have a role in managing and controlling Retirement/Pension Plan assets. It also defined a plan Fiduciary to include anyone who gives investment advice for a fee.

In 1975, the Department of Labor (DOL) looked to elaborate on “investment advice” and issued a 5-part regulatory test that provided some structure to the meaning. About 40 years later, the DOL started to recognize that it actually enabled Financial Advisors, Brokers, Consultants, and Valuation Firms to:

. Avoid Fiduciary Status
. Disregard Fiduciary Obligations
. Disregard prohibitions on “disloyal and conflicted transactions”.

In effect, Employer Sponsored Retirement Plans became a platform for Financial Advisors, Brokers, Consultants, and Valuation Firms, to steer Retirement Plan Participants to investments based on their own self-interest. This type of intent is prohibited by ERISA.

These advisors represent a whole generation of people who have no idea as to what the spirit of these laws are, no Fiduciary awareness, and no fear of accountability under ERISA. This is what the Department of Labor is trying to remedy.

Fiduciary Modeling

By

On June 7, 2016

In Fiduciary, Financial Planning, FinTech, Retirement Plan Design

Somewhere along the line, our society became more impressed with mathematical rigor and modeling than actually accomplishing goals. Most people would rather spend time choosing and maintaining a comfortable lifestyle during their goal journey than deciphering a methodology.

Are the assumptions true or were they necessary to get a solution? Whose solution? Did those 20 pages of disclaimers materialize for the benefit of the client or the firm that produced it?

Fiduciary Modeling includes giving the client the ability to learn how to apply more subjectivity with regards to what they want to accomplish in their life. The path is personal and must be visible not trapped in someone else’s algorithm.

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