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

No comments:

Post a Comment