fi360 Blog

Fiduciary Links

• Here is an article that will make many of our AIF designees happy.  It seems that as times are getting tougher, investors are increasingly turning to RIAs who acknowledge their fiduciary status are seeing their assets undermanagement drastically increase as investors move away from wirehouses. This is further proof that showing investors that they are your primary concern pays off.
• One recent hot topic in the retirement world is 401k loans and debit cards.  A proposed Senate bill aims to limit the number of loans you can take from your 401k and would ban the 401k debit card idea altogether.  FINRA offers a convincing case for staying away from 401k loans.  The possible benefits of a 401k debit card program are that if you do have to borrow, you can borrow on a more "as-needed" basis rather than in one lump sum.  There are also more flexible options for repayment.  However, 401k borrowing should be a last-ditch resort for coming up with cash for most employees, and the debit-card idea does seem to promote the same kind of frivolous spending that has gotten most Americans who are having trouble saving into trouble in the first place.  The Center for American Progress has a study illustrating just how much borrowing from your retirement can affect you in the future.  And, the providers of the debit cards are charging around 3% interest on these loans in addition to the interest you pay back to yourself.  If you are a plan sponsor, it is probably in the best interests of your participants to not even consider such an option, and if you do decide to make the debit card available, make sure you educate on the potential downside of borrowing against retirement.  Hopefully, this won't even be an option sooner than later.
• Confluence, a fellow Pittsburgh-based company, released the results of a fund administrator survey, which indicated fund administrators would like to see a more automated process for reporting to investors and regulators.  The leading causes of concern with the current manual process most funds employ: costs, data entry error, and scalability issues.
• Outgoing SEC Commissioner Paul Atkins stated that the SEC needed to take care to not exceed its authority or rule on controversial shareholder rights issues without considering public comment.

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

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Fiduciary Links

• The new Report to Plan Sponsors from Reish Luftman Reicher & Cohen and fi360 CEO Blaine Aikin's new Fiduciary Corner column have both been added to our article database.
• California passed the Professional Fiduciaries Act, which requires those acting as investment fiduciaries to be licensed by the state and establishes the Professional Fiduciaries Bureau within the California Department of Consumer Affairs..  Licensure comes with a number of requirements, highlighted in this press release.
• Friend of fi360 Dr. Susan Mangiero blogs about the state of current financial markets, risk management, fixed standards and Scarlett O'Hara.
• Despite the big step in the right direction of automatic enrollment for 401(k) plans, a new report from the Employee Benefit Research Institute says it still isn't enough.
• A DOL press release yesterday announced a proposal for new fee disclosure rules for 401k plans.  One estimate says the new rules could save service providers $800 million over the next 10 years and $6.9 billion for plan participants.

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

Found an interesting link?  Submit it here.

Attention: Media Opportunity

We recently received a request for an interview from a publication "looking for an independent certified financial planner who has coped with a personal serious illness (or event like a car accident) and had to leave his or her practice for awhile. Did your clients return, did you have business insurance, etc."

If this applies to you and would like information please contact us.

Please respond by the close of business on Friday, July 25.

Best practices recommendation not enough for fiduciaries

A few weeks ago, we linked to the home page for the Asset Manager's and Investors' Committees of the President's Working Group on Financial Markets.  These committees are made up of private sector individuals tasked "to develop and publicly release best practices so that market participants may enhance investor protection and systemic risk safeguards consistent with PWG principles and guidelines."  The full best practices reports may be downloaded from their home page. 

The recommendations were strong, hit upon the right areas, and offered specific guidance, but were clearly lacking in one sense.  Rather than present these best practices as the means of fulfilling fiduciary requirements, they are offered as voluntary.  Following the suggested practices would fulfill and exceed a number of fiduciary obligations.  Clearly stating so would create more support for their adoption.

If you would like to read more about this subject, please read my most recent Fiduciary Corner column in InvestmentNews.

Fiduciary Links

• Pensions & Investments has a good bank of podcasts dating back over a year.  There are a number of good ones in there and now that we have them on our radar, we'll let you know of upcoming ones of interest.
• The FPA announced a new "Best Practices" Task Force to offer guidance on new CFP Standards of Conduct.  Included in the task force are fi360 CEO Blaine Aikin, three fi360 designees, and a speaker from our last conference in Charlotte.
• A New York Times article today says online classes are increasing in popularity with the increased fuel prices.  We have noticed the same trend in our Web-based AIF Training programs.
• A Money Management Executive piece remembers recently deceased John Templeton for the focus on low fees in his Templeton Growth Fund.
• If you enjoy showing off your fi360 affiliation, we have added the same fi360-branded USB jump drive, satchel, binder and padfolio that we distribute in our training programs to our Fiduciary Store.  Remember, AIF and AIFA designees receive 15-20% off on most products, 50% off on fi360-produced handbooks.
• Check out page 9 of Investment Advisor magazine.  The fi360 blog is featured in "Around the Blogosphere"

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

Found an interesting link?  Submit it here.

Fiduciary Links

• Last month, the U.S. Government Accountability Office issued this report entitled Individual "Retirement Accounts: Government Actions Could Encourage More Employers to Offer IRAs to Employees." Although they found assets in IRAs exceed those in DC and DB plans combined, they also found many smaller employers were still reluctant to offer them, citing "administrative costs and concerns about employer fiduciary responsibilities." They also found that 37% of workers will retire with zero savings. The House Committee on Ways and Means held a hearing on June 26 focusing on this report.  Rep. Richard E. Neal (D-MA) said in his opening remarks, "We must begin to think more creatively and use innovation to capture this group of workers who are not saving."  The report effectively describes ways IRAs have been built and can be modified to make them more attractive for small employers. One panel member at the hearing was Mark Iwry, an architect of the Auto-IRA enrollment plan. A well-written, thorough description of his plan can be found here.  Viewed in context with this report from the Employee Benefit Research Institute about the positive effects of auto-enroll features for 401(k) plans brought about by the Pension Protection Act, and it would seem a lot of progress is being made in saving those workers who are less informed or disinterested in their retirement plans from themselves.
• An editorial at Plansponsor.com looks at criticisms of workplace retirement plans and how the benefits to those who might not otherwise save for retirement, or save as interestedly, outweigh any of those criticisms.
• Here is an excellent summary enforement and non-enforcement actions from Mondaq.  This is the first I've come across this, but it looks to be a monthly feature, so I'll look to post future summaries.  The first two items and the fourth item are particularly interesting, but all of them can be viewed with some fiduciary bent. 
• New designee press releases and notices: Karen Codman and Tom Bobowski.
• Finally, on the humorous side, here is blogger Kaimipono D. Wenger's take on if hiring a psychic to help make investment decisions is a breach of fiduciary duty.  Fi360's take: it is.

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

Found an interesting link?  Submit it here.

Fiduciary Links--Happy 4th of July!

Happy 4th of July! In honor of Independence Day, here is a link to USA.gov's fourth of July home page. It includes fun facts and history; travel, fireworks and grilling information and some other good links. And, as I'm sure is the case for most of you, the fi360 office will be closed until Monday. Enjoy the video below of Pittsburgh's famous fireworks by Zambelli.  Zambelli is from right here outside of Pittsburgh and have done fireworks at the Statue of Liberty, Mount Rushmore, Super Bowls, and more. (Update: the Pittsburgh Post-Gazette has a feature on Zambelli today) Enjoy the holiday!

• Financial-Planning.com posted a special report to help advisors reassure their clients during a market downturn.  It is basically a page of links showing the progression from negative headlines, to concerned clients, to how advisors can reassure their clients and keep them from making bad, reactionary decisions.  Pretty interesting feature.
• A U.S. News and World Report blog found this study from two professors from Stanford and Harvard, respectfully, indicating young investment managers are more likely to chase the latest trends (the study focuses on young managers loading up on technology stocks during the technology bubble).  Manager experience is criterion 1.1.1 of the Prudent Practices for Investment Managers.
• The Hartford announced today that they were already making changes to their fiduciary service.

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

Found an interesting link?  Submit it here.

Limitations of fiduciary warranties

Last Thursday in our Fiduciary Links post, we noted how AIG was introducing a new fiduciary insurance policy to protect individuals who manage public entity employee benefit plans.  This reminded me of a question we received not too long ago seeking our thoughts on fiduciary liability insurance or warranties.  Using one such warranty as an example, the following information was provided regarding coverage: 

The Warranty will provide specified assurances to plan fiduciaries in several critical areas including:

• Independent certification that ERISA standards of fiduciary prudence have been applied to investment identification, screening and monitoring
• Independent certification that investment options under MassMutual's Smart Architecture(SM) Investment Program provide a suitable basis for plan participants to construct well-diversified investment portfolios for retirement
• Investment options made available include balanced and target date investments that meet the Department of Labor's proposed requirements for Qualified Default Investment Alternatives (QDIA)

I could argue that these assurances address Practices 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2, 3.3, 4.1 and 4.2 in the Prudent Practices for Investment Stewards handbook. That's only 10 of the 22 Practices.  My fear is that the fiduciaries will believe that they are protected for the entire spectrum of their responsibilities, when in fact they are not.  It may also cause them to relax with respect to their oversight responsibilities.  I have no problem with fiduciaries seeking protection in the form of a warranty, as long as they have a clear understanding of what the protection includes and that their oversight responsibilities remain.

Fiduciary Links

• We unearthed an interesting chain of blogs, beginning with friend-of-fi360 Susan Mangiero, explaining more litigation that is increasing the rights of individual plan participants to sue for breach of fiduciary duty.  While the LaRue decision probably won't result in a dramatic increase in litigation from suits that would not otherwise have been filed, blogger Stephen Rosenberg has noted that we should see an increase in suits from plan participants rather than in class action suits.  In the same post he notes how the recent Tullis v. UMB Bank decision builds on LaRue to expand the standing of lawsuits to proceed to the merits.  The Health Plan Law blog of Roy Harmon provides a detailed analysis of this.
• This "Ask the Expert" column from CNNMoney.com comes from an individual investor questioning his need to continue paying the adviser who helped him build his portfolio now that he is in retirement and has moved to the monitoring phase of his investing plan, but the answer given by Walter Updegrave translates very well to explaining the value for fiduciaries hiring prudent experts.
• Boomer Market Advisor published this list today of the issues keeping the broker-dealer world up at night, and, suprise, regulation seems to be the dominating boogey man.  [Also, while visiting Boomer Market Advisor's website, take a look at the "Most popular" articles list in the corner.  Fi360 CEO Blaine Aikin's January article on SRI is still holding strong at #10, good job Blaine!]
• An InvestmentNews article today says that some of the new CFP rules may create such burdensome paperwork that some advisors may end up dropping smaller clients because they payoff won't be worth it.  AIF designee Morris Armstrong is quoted in the article questioning the place of the CFP Board to enact such a code. [NOTE: Mr. Armstrong let us know that we had misrepresented his comments in this space.  We corrected the previous sentence to reflect his concern.  See the comments section below for Mr. Armstrong's full comments.] Hopefully these concerns don't become a widespread problem, because increased transparency and the acceptance of fiduciary duties by CFP certificants is a big step in the right direction.  Maybe the SEC's new initiative on better utilizing techonology in disclosure that we relayed last Thursday is a long-term solution to disclosures affecting business models.

For more links, visit the Fiduciary Links and Articles Database sections of fi360.com.

Found an interesting link?  Submit it here.