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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 5/13/11

May 16
00:18 2011

1020805_25983300_Trending_Topics_2011.05.13_stock_xchng_royalty_free_300Welcome 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 those in the business of supporting these fine folks. If you smile when you read these entertaining snippets, well, that’s the idea. If you think we’re missing something important, then please let us know.

Fiduciary News Lead Story:
5 Key Facts 401k Plan Sponsors Might Have Missed at the fi360 Conference,” (Fiduciary News, May 10, 2011). One might see the fi360 Conference a merely an industry event, but you’d be surprised what kinds of gems a 401k plan sponsor might discover there. Here are five of them.

ETFs – Drip, Drip, Drip…:
You can almost feel the volcano swelling beneath your feet, the ominous air of the impending eruption smothering the landscape around you. And the children should lead them…
ETF investors at risk in next ‘flash crash’,” (MarketWatch, May 8, 2011) Chuck Jaffe writes that nothing has changed since last year’s flash crash and investors should therefore take heed. This isn’t rocket science and, although Jaffe didn’t bring it up, the unreliability of “stop-loss” was actually experience on a much grander scale during the 1987 market crash.
Why ETFs give an uneasy sense of déjà vu,” (Financial Times, May 5, 2011) Here’s the tease from this very comprehensive – yet quite readable – story: the apparent mania centered on ETFs is not unlike that of Collateralized Debt Obligations heading into the credit 2008 crisis. The article asks and attempts to answer the question as to whether aggressive sales programs have overtaken sound investment practices.
Buyer beware – Not all ETFs are created equal,” (Reuters, May 9, 2011) Although this story mixes metaphors (specifically in comparing ETFs vs. actively managed mutual funds as opposed to correctly comparing ETFs vs. passively managed mutual funds), it does reveal some interest facts, including the number of erroneous trades during last year’s flash crash that were related to ETFs.
ETFs Hot Among Younger Investors (Video),” (Wall Street Journal, May 11, 2011) There’s an appeal that’s similar to social networking and the natural appeal of the “exotic” to younger audiences.

Fiduciary – Just Follow the Money…:
After the high from the fi360 conference comes the low of both Republicans and Democrats blasting the fiduciary standard. We can almost forgive the Republicans, who might be caught up in that loyal opposition thing, but the Democrats? I smell a rat…
Mercer Bullard Asks at fi360: Who Will Regulate Investment Advisors?” (Advisor One, May 9, 2011) Bullard thinks FINRA regulation is the “worst case scenario” and explains why he’s created a competing SRO.
Will new pressures on Dodd-Frank influence the fiduciary standard?” (InvestmentNews, May 9, 2011) Fiduciary fans hearts will wilt when they read this article. Top Republicans, in a general statement questioning the economic impact of Dodd-Frank, specifically cite the SEC’s February letter on a universal fiduciary standard. The problem is the Republican argument, in general, has broad appeal and too few understand (and embrace) the fiduciary philosophy to separate it from the universal anti-government sentiment.
FINRA Makes Its Move,” (Financial Advisor, May 2011) A very comprehensive article detailing the position of the CFA Institute in the whole idea of who regulates advisers. The CFA Institute would prefer the SEC remain as the regulator, but the SEC and Congress may want help if they broaden the fiduciary standard to include brokers.
The Cost of Protecting the Public: The SEC, Congress and the Fiduciary Standard,” (Advisor One, May 10, 2011) Bob Clarke’s excellent take on The Committee for the Fiduciary Standard’s letter responding to congressional Republicans. One only thing missing – what’s the cost of not creating a uniform fiduciary standard?
Handful of broker-dealers holding back fiduciary rule,” (InvestmentNews, May 10, 2011) Who speaks for investors: The Consumer Federation of America or The National Association of Insurance and Financial Advisors? Seems like the latter is claiming the fiduciary standard will hurt small investors and the former is saying they can’t find substantiation for that “fact” anywhere. The CFA also says the NAIFA misinformation is causing Republicans to hold back.
Do Republicans hate 401k investors?” (BenefitsPro, May 12, 2011) Are the Republicans asking for the financial equivalent of death panels? By requesting a “cost justification” for the new fiduciary rule from the SEC, the Republicans are unwittingly saying at some point, it’s not worth the cost to society to save a person’s life savings.
New definition of fiduciary raises concerns in the retirement industry,” (Employee Benefit News, May 10, 2011) This is an example of the power of the press. The provocative title matches the select quotes of a handful of the usual suspects who are against the fiduciary standard. One almost laughs reading how imposing a rule that would “dramatically increase costs to 401k participants and plan sponsors” when everyone in the industry knows, with increased transparency and no more conflicts of interest, the exact opposite is true.
Group calls broker bill a ‘death blow’ to consumers,” (BenefitsPro, April 14, 2011) Here’s the counterpoint to the above article. Notice the dateline.
Congressional Democrats Want Agencies to Revise Fiduciary Rule,” (Accounting Today, May 12, 2011) Looks like industry lobbyists aren’t betting just on one horse, as the minority party now chimes in that the new fiduciary rule will “hurt” investors by limiting choices. How many times do we have to say this: “That is precisely the point, the new fiduciary rule will eliminate expensive alternatives laden with conflicts-of-interest.”
Democrats Blast Proposal to Redefine Fiduciary,” (Financial Planning, May 13, 2011) Here’s another piece showing how Democrats are now also repeating verbatim the talking points of the brokerage industry. Guess the Consumer Federation of America doesn’t give as much in political contributions.

Fees – Meanwhile, Back Down on the Farm…:
Here’s the honest truth, no matter how long Washington fiddles with the fiduciary standard, the fee disclosure will eventually blow the lid on the whole conflict-of-interest scheme and show you where the money is. If there’s yet another delay in implementation, though, well that’s when we can start talking about black helicopters…
401k fee disclosures: What they mean and what’s at stake,” (BenefitsPro, May 9, 2011) A good overview of how the new rule will impact investors, plan sponsors and investment companies. What’s missing is that this rule applies to all service providers, not just plan sponsors.

Investments – Remember Newton’s 3rd Law…:
It’s funny. Just when you think you can start trusting a media outlet, they come back with a piece that’s obviously right from an industry press release…
Will Your Savings Run Out in Retirement?” (Wall Street Journal, May 9, 2011) Ironically, the subtitle of this article is “Nest Egg: Break Here.” In a double irony, just last week the Wall Street Journal exposed how the schemes outlined in this story tend not to work. Oh, well, at least no one can accuse them of not being fair and balanced. Hypocritical, yes.

Pensions – If a Tree Falls in the Forest…:
…and you’re directly beneath it, how many independent advisers will it take before you agree you heard it?
How retirees hit a hot streak in Chile,” (BenefitsPro, May 10, 2011) With all the concern about converting public pensions (and maybe even Social Security) in a 401k-like plan, there’s been a thirty-year experiment going on in South America. The results might startle you.
Multiple Employer Plans as a Fiduciary Risk Mitigation Tool,” (Advisor One, May 5, 2011) Here’s the tease: “In fiscal year 2009, states overpromised at least $1.26 trillion in retirement and retiree health care benefits to public employees, according to a Pew study.” The article comes through with a very thorough reading of the proposed solution.

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.
5 Characteristics of a Good 401k Plan,” (, May 9, 2011)
Michael Montgomery Wins fi360 Fiduciary Article Competition,” (Advisor One, May 5, 2011)
401k’s grow, but savers are still worried,” (MarketWatch, May 11, 2011)
The Tamar Frankel Fiduciary of the Year Award Goes To…” (Advisor One, May 6, 2011)
Fidelity: 401k accounts hit all-time high,” (BenefitsPro, May 11, 2011)
401k balances at record level, Fidelity says,” (InvestmentNews, May 11, 2011)
Average U.S. 401k Balances Reach Highest Level, Fidelity Says,” (Bloomberg, May 11, 2011)
Employees take charge: Retirement trends and troubles,” (BenefitsPro, May 11, 2011)
2.4% of 401k holders stopped contributing,” (Employee Benefit News, May 12, 2011)
The Best Way to Find an ERISA Attorney,” (DCPI Weekly Exchange, May 12, 2011)

Wisdom from Some of Our Favorite Blogs:
ERISA Lawyer Blog: Third Circuit Rules That Application For Pension Benefits Is Untimely, So Suit For Benefits May Not Be Brought
401kBasics: Plan Sponsor Quick Tips: Reviewing a Plan Invoice
fi360 Blog: Fiduciary Links: Conference Wrap Up
fi360 Blog: SEC Backlog Leaves Self-Dealing Loophole Intact

Hot Tips from Popular Web Resources:
Benefits Law Update Blog: DOL (Finally) Considers Changes to Electronic Disclosure Rule

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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