Thursday, June 18, 2015

Tibble v. Edison Ruling - Some potential impact to Advisors

 What Tibble v Edison International Ruling Means to Advisors

In the above linked article recently published on LifeHealthPro, the author discusses the Supreme Court’s recent decision on Tibble v. Edison International which centered on whether Edison International’s financial advisors and investment committee had breached their fiduciary duties by choosing retail share classes instead of institutional shares of specific mutual funds. It mainly focused on whether the ability to claim such a breach exceeded the six-year statue of repose mandated by the Employee Retirement Income Security Act (ERISA).

In mid-May, the high court handed down its unanimous opinion in Tibble v. Edison and said that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.”  This was expected and probably brought a widespread “no kidding” response from fiduciaries who have done just that from the get-go.

The Court vacated and remanded the lower court’s ruling; they went on to note in their opinion that the previous court’s ruling had “erred by applying a 6-year statutory bar based solely on the initial selection of the three funds without considering the contours of the alleged breach of fiduciary duty.”

The author posits the idea that some industry insiders are worrying that this may be the beginning of the Supreme Court’s interest in delving deeper into the fiduciary duties of those managing employee retirement plans and that the Court left just enough vagueness in its opinion to make advisors wonder what will be considered “reasonable” for due diligence and monitoring.

I was interviewed and quoted a few times in the article, specifically regarding the veracity of the decision and the likely consequence of minimizing the protection of the six-year statute of repose.

Another commenter suggested that this decision won't have much impact on keeping fees reasonable or a fiduciary duty to monitor since these ideas have already been in play for quite some time, but that it may cause some firms to take the idea of reviewing the plan's Investment Policy Statement (IPS) to ensure compliance with it.
At my firm, Unified Trust, we act as the plan trustee and in that role we are responsible for executing the plan's IPS, selecting and monitoring the investments and generally employing a prudent process that is thorough, regular and well documented.  One result from this ruling that I see happening more is a greater conscious effort from Retirement Plan Committees and their advisors in documenting their decision-making or outsourcing to firm's that will.

- Jason Grantz

Wednesday, June 17, 2015

Fiduciary Fight Continues - Could Congress cut off funding?

Earlier today, a House bill plans to stop the Department of Labor’s fiduciary proposal by cutting off funding to implement the measure.

The measure was included by the House Appropriations Committee in the draft fiscal year 2016 Labor, Health and Human Services (LHHS) funding bill, slated to be considered in subcommittee on June 17. The legislation includes funding for programs within the Department of Labor, the Department of Health and Human Services, the Department of Education, and other related agencies.

In a summary of the bill, the provision dealing with the fiduciary proposal is included under a section titled “Reducing Harmful Red Tape.” The language itself says simply, “None of the funds made available by this Act may be used to finalize, implement, administer, or enforce the proposed Definition of the Term ‘‘Fiduciary’’; Conflict of Interest Rule—Retirement Investment Advice regulation published by the Department of Labor in the Federal Register on April 20, 2015 (80 Fed. Reg. 21928 11 et seq.).”

In another article, published on Investment News Weekly, it is pointed out that if this particular bill doesn't make it through the Senate, this same rider could get attached to another bill.  If it were attached to a bill that would be considered too important for the President to veto, it is possible that the DOL Fiduciary rule proposal could be de-funded. 

The article attached here: DOL Fiduciary Rule in Crosshairs of New Spending Bill?

We've written on this blog about the DOL Fiduciary Proposal, and have summarized it with updates linked here.  Summary of DOL Fiduciary Proposal

Earlier this spring, U.S. House Representative Republican Ann Wagner announced publicly a three-pronged approach to try and kill these rules.  The first strategy involves getting a bill through requiring the SEC to take lead in the rule making to establish a new fiduciary standard. 

Failing that, the second strategy is to employ the private sector to attempt to delay the rules for as long as possible in hopes that it pushes into and beyond the presidential election and the incoming president stops it.  This second strategy is well known and the DOL is aggressively moving to have these rules finalized and in place by the second quarter of 2016.

Her third strategy is the appropriations approach outlined earlier in this post.  Needless to say, there is considerable opposition in both the public and private sector to these rules moving forward.  More updates will come as this unfolds.

- Jason Grantz

Tuesday, June 2, 2015

Mailbag: Q&A with The 401(k) Study Group

The 401(k) Study Group has created a new segment with their Blogtalk radio podcast called 'Mailbag' which is an 'Ask the Expert' style radio interview.  I was fortunate enough to be tapped by Chuck Hammond to be their first "Expert" tapped to answer questions.  Below is the link.  Enjoy!

Ask the Expert' with Chuck Hammond

- Jason