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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/8/10

October 11
21:11 2010

Welcome to Fiduciary News Trending Topics. Each Monday, we’ll give you a quick synopsis of the major news events and trends impacting ERISA plan sponsors, 401k fiduciaries and 1020805_25983300_Trending_Topics_2010.10.08_stock_xchng_royalty_free_300those in the business of supporting these fine folks. If you smile when you read these entertaining snippets, well, that’s the idea.

Fiduciary News Lead Story:

7 Deadly Sins Every ERISA Fiduciary Must Avoid: The 3rd Deadly Sin – ‘Bond Insecurity’,” (Fiduciary News, October 6, 2010). This is the first of five articles in a timely series on some of the myths surrounding bonds as an asset class and an investment. Read and learn some fascinating facts derived from academic studies you don’t often hear too much about.

Fiduciary – Not Dead Yet:

It’s been said a camel is a horse designed by committee. Substitute “financial regulation” for “horse” and “government” for “committee” and who knows what kind of “camel” we’ll end up with. Judging from this week’s stories and their implied anxiety, the idea of a fiduciary standard with an asterisk remains alive and well in the halls of the SEC.

A True, Genuine, Authentic, ‘40 Act-like Fiduciary Standard: Clark at Large Blog,” (Advisor One, October 4, 2010) This piece tells it like it is, and throws in a dash of humor to keep the reader bouncing along.
Industry groups take fiduciary arguments to SEC,” (Investment News, October 6, 2010) Read between the lines in this one. The SEC appears to be heading towards a universal standard, but the brokerage industry wants to make sure the SEC “protects individual investors while preserving investor choice when personalized advice is provided.” Ask any SEC registered RIA if they have this problem.
One Standard, Period,” (Financial Advisor, October 6, 2010) It all comes down to this – who’s the fiduciary standard for – the client or the broker? Notice how RIAs are on the sideline on this one.

Mutual Funds – An African Swallow or a European Swallow?:

What’s obvious to some is news to others. Remember mutual funds? Remember finance theory in the days before Modern Portfolio Theory? How do we know so much about this? Well, you have to know about these things when you’re a financial writer.

The most popular funds in the 401k market,” (Investment News, October 3, 2010) As if there’s safety in numbers (isn’t that what the lemming said?). Interesting thought – follow the money. How many of these funds are distributed by brokers as opposed to fiduciaries. Just wondering.
Accounting proposal will smack actively managed funds, critics say,” (Investment News, October 5, 2010) Truth be told, it’s not actively managed funds that will be hurt, it will be high transaction funds, which can include many popular index funds and might exclude smaller actively managed funds. Still, it’s a silly proposal that doesn’t change the bottom-line: How well does the fund perform in terms of its annual investment return?
Unconventional Wisdom: Stocks Do Beat Funds,” (Wall Street Journal, October 3, 2010) The article refers to a “back-to-the-future moment” in discovering a handful of stocks can do a lot better than buying an index fund. This isn’t “unconventional wisdom,” it is just old wisdom. Please refer to your CFA Level I study books for the 30+ year-old academic studies that show the optimal portfolio size is between 12 and 40 stocks. (It depends on the study, but you get the idea.)
SEC Proposal to Eliminate 12b-1 Should Be Considered by Fund Boards: Law Firm,” (Advisor One, October 6, 2010) The article’s premise is if you eliminate the 12b-1, brokers will have to squeeze the toothpaste in ways that may breach the legal limit regarding compensation. So, what we’re saying is that ridding the 12b-1 rule will leave only illegal options. Sorta makes you wonder: Why were these 12b-1 fees legal in the first place?

Annuities – She’s a Witch! Burn Her!:

Does an annuity weigh as much as a pension (or a duck, for that matter)? For all the “guarantees” (uh, that would be the income, not the principal), it still comes down to having enough saved to self-endow. If you don’t have it to begin with, an annuity won’t make it magically appear. And don’t even get me going about the fees and the fiduciary question.

401k Annuities: Angels or Devils?” (Employee Benefit News, October 1, 2010) Read the cons on this list. Can anyone spell “F-i-d-u-c-i-a-r-y L-i-a-b-i-l-i-t-y”? This is a train wreck waiting to happen.

Major Plan Sponsor Moves and News:

What are other plan sponsors and fiduciaries doing with their plans? And how are participants responding? The latest in legal proceedings involving plan sponsors and fiduciaries.

Fund Investors Misunderstand Risk,” (MarketWatch, October 1, 2010)
Auto-Enrollment in 401k’s Benefits Young Savers, Financial Engines Says,” (Bloomberg, October 4, 2010)
A retirement expert’s take on today’s 401k market,” (Employee Benefit Adviser, October 1, 2010)
Not all 401k’s are created equal,” (Sacramento Bee, October 4, 2010)
Retirement Industry to DOL: Extend Form 5500 EFAST2 Filing Deadline,” (Advisor One, October 4, 2010)
Amid backlash and budget deficits, government workers’ pensions are targets,” (Washington Post, October 6, 2010)
DoL Urges Unisys Fee Case Reversal,” (, October 6, 2010)
It’s automatic — increases aid post-retirement income, study says,” (Pensions & Investments, October 7, 2010)
Boomers’ Shrunken 401k’s Spark Interest in Reverse Mortgages,” (BusinessWeek, October 7, 2010)
Profit Sharing Out at WalMart in Favor of 401k Match,” (, October 8, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: Fiduciary Responsibilities Reminder!
fi360 Blog: Fiduciary Links: It’s prudence, not prescience that matters for fiduciaries
fi360 Blog: Investment adviser oversight being overlooked in reform debates
fi360 Blog: How does a fiduciary review make us safer?

Hot Tips from Popular Web Resources: The Fiduciary Process is Only As Good As the Questions You Ask
Business of Benefits: Prudence, not Prescience: A Suggestion for a Fiduciary Standard for DC Annuity Purchases
DOL: Renfro Amicus Brief, in support of plaintiffs-appellants and requesting reversal Considering Multi-Level Implications Of 12b-1 Proposal
SunGard Relius: Service Provider Fee Disclosure Regulations: Prohibited Transaction Exemption Auto Features in 401k Plans Can Be Structured to Give Big Boost to Retirement Savings, Especially for Low-Income Workers
SSRN: Do Risk Disclosures Affect Investment Choice? by Angela Hung, Aileen Heinberg, Joanne Yoong

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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