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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 5/20/11

May 23
00:09 2011

1020805_25983300_Trending_Topics_2011.05.20_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:
401k Plan Sponsors: Is Your Investment Policy Statement Still Using Outdated Language?” (Fiduciary News, May 17, 2011). How old is that 401k Investment Policy Statement? If it hasn’t been updated in a while, chances are it contains language that could get the Plan Sponsor in trouble. Here’s at least one thing you can look for.

Fiduciary – Never Bring a Knife to a Gun Fight:
The big guns are out and those who thought mere logic would win the day seem to have forgotten politics doesn’t work that way. It’s “show me the money” or “I’ll show you the highway.” Sorry to disappoint folks, but that’s the way modern America works. George Washington is rolling over in his grave.
Fiduciary advocates make push for new rules,” (InvestmentNews, May 15, 2011) Enter Barney Frank, the ironic champion of fiduciary goodness. Unfortunately for fiduciary fans, the politicization of the issue makes it less likely to come to fruition. Maybe that was the strategy all along.
Struggling With the Fiduciary Standard and Risk Tolerance (Video),” (On Wall Street, May 17, 2011) Here’s a pretty good explanation of why we need a fiduciary standard. If we don’t get this right, trust in the industry will be lost for a long time. It’s all the most important when comes to risk tolerance.
Will the 112th Congress Repeal Dodd-Frank?” (Advisor One, May 16, 2011) Wholesale repeal is unlikely, but certain specific segments might be.
Fiduciary Advocates: Call Out SIFMA and NAIFA,” (Advisor One, May 16, 2011) Author Bob Clark suggests all the little mom and pops in favor of the fiduciary standard pool their resources and buy full-page ads in major media market newspapers. He’s got some suggestions for these ads you just have to read.
Fiduciary duty skepticism crosses the aisle,” (InvestmentNews, May 18, 2011) This is an extension of last week’s article. Read it. It appears the Democrats are saying they’re against the fiduciary standard but not against it. Confused?
Adviser Versus Advisor: Does It Really Matter How You Spell It?” (Advisor One, May 18, 2011) Finally, someone spells it out – only an SEC-Registered Investment Adviser can use the “er.” All else may simply be pretenders to the crown. But, there’s an amazing twist in this story that might surprise those who think “er” is the cat’s pajamas.
TD Ameritrade’s Tom Bradley on RIA Performance, Breakaway Brokers and Fiduciary,” (Advisor One, May 19, 2011) It’s a single line in the whole article, but Bradley says data suggests investors prefer fiduciary advisers over salesmen.
TD’s Bradley: Rule to protect investors could cost them their IRAs,” (InvestmentNews, May 19, 2011) Wait! Now Bradley is saying bad things about the fiduciary standard? At the same meeting? Actually, if you read between the line, Bradley is saying the rule to protect investors could cost TD Waterhouse and all other mutual fund platforms (Schwab, Fidelity, etc…) their IRA business and clients save money by buying directly from mutual funds instead of going through third party custodians.
For RIAs, time is ripe to pick off 401k assets,” (InvestmentNews, May 19, 2011) Notice what the headline doesn’t say. It doesn’t say “advisors.” This is just the latest in a series of articles portending the marketing realities for RIAs. I’m sure many are saying, “but we’ve been making the fiduciary argument for year and the plan sponsors never listened.”
Harold Evensky on Steps Needed to Restore Investor Trust—Weekend Interview,” (Advisor One, May 19, 2011) It’s only one question, but Evensky sums up the fears of all those in favor of the fiduciary standard.

Fees – If it’s easily measurable, it must be good: You’re scheduled for life-threatening surgery. The government wants you to use the least expensive doctor, not  the most successful doctor. Which do you want? This isn’t a comment on National Health Care (although some would argue it is), but a general sense of “you always get what you pay for.”
For fee-conscious, mutual funds and ETFs are a winning parlay,” (InvestmentNews, May 15, 2011) This article gets closer to the key elements of these products by focusing on no-load mutual funds as a cheaper alternative. It still mixes the metaphor by not segmenting out index funds as the appropriate comparison with ETF expense ratios.
Annuity fees a turnoff for clients and advisers,” (InvestmentNews, May 19, 2011) With cooler heads 2 years later, fewer think annuities are the retirement panacea there were touted as during the recent market downturn. It gets worse. When asked how annuities fit with fee-only advisers (i.e., fiduciaries who don’t engage in self-dealing), the expert quoted says “they rarely do.”

Investments – Do you prefer chocolate or vanilla?:
It makes sense to have these arguments only after we settle the issue of the fiduciary standard. Until then, it’s too hard to tell if someone’s making an academic point or just trying to sell a product.
Index Funds Should Be Offered in 401k Plans,” (New York Times, May 13, 2011) If you didn’t read the Vanguard press release explaining why index funds are so great, you can read here in the New York Times. Warning: If you have an MBA in finance, you’ll probably want to hold your nose and cover your ears while reading, as the author’s confusion regarding “risk” and “costs” reeks of fingernails across the chalk board.
The New Case for Balanced Funds,” (, May 13, 2011) Here’s a counterpoint to the above article. It comes complete with its own set of compelling statistics, albeit this time from Morningstar, an apparently more objective source.
Absolute-return funds raise questions of risk,” (InvestmentNews, May 15, 2011) This is a great article to read if you want to know what really motivates most financial service firms. In the end, it’s not about arcane investment theory, it’s about following consumer trends (a.k.a., slick marketing). These funds push the regulatory envelope as well as the envelope of credibility when it comes to investment theory. Still, the people want to be sold these funds, and too many financial service firms feel it’s more important to give people what they want instead of giving people what they need.
Cheers for 401k Tiers,” (Treasury & Risk, May 2011) Some of the comments on this week’s Fiduciary News story didn’t get the concept of incorporating investment goals, rather than investment options, into the investment policy statement. This article explains the benefits of creating “Tiers” within a 401k plan. This “bunching of option” into similar goal categories satisfies 404(c) and actually helps avoid the “paralysis of analysis.”
Caveat Emptor for 401k Plan Sponsors,” (Advisor One, May 18, 2011) The article explains how plan sponsors are not fully aware of their fiduciary duty, and that could get them into trouble.
Portfolio management theory all wrong, claims economist,” (InvestmentNews, May 18, 2011) On the quad, this is what they call “old news.” Sooner or later the industry will recognize this fact, but not until the lawyers have been consulted and covered up all evidence of liability.

Pensions – If a Tree Falls in the Forest…:
More bad news from across the nation and the world. Here’s the worst news: the major media seems bored by this story, although the issue remains unsolved.
Reynolds is outspoken advocate for overhaul of US retirement system,” (, May 15, 2011) Here’s a nice little puff piece that states the obvious and could have said a lot more.
Whitney warns on US state pension schemes,” (Financial Times, May 18, 2011) The voice from across the pond says our public pensions might cause a double-dip.

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.
The coming crisis in retirement preparedness,” (BenefitsPro, May 16, 2011)
Three things every adviser (and provider) wishes plan sponsors understood about recordkeeping conversions,” (, May 15, 2011)
Kraft 401k lawsuit: Six lessons for plan sponsors,” (BenefitsPro, May 17, 2011)
The 401k Investor: A Retirement Plan That Works,” (San Francisco Chronicle, May 17, 2011)
Show 401k balance as monthly annuity, bill proposes,” (Pittsburgh-Post Gazette, May 17, 2011)
‘Alarming Number’ Of Middle-Income Boomers Put Brakes On Retirement,” (Financial Advisor, May 17, 2011)
Senate Bill Would Limit Savers Using 401k Plans As Rainy-Day Funds,” (Financial Advisor, May 18, 2011)
What To Do With Old 401k Plans? Many Aren’t Sure,” (Financial Advisor, May 17, 2011)
The 401k plan sponsor’s biggest mistake,” (BenefitsPro, May 18, 2011)
Supreme Court ruling impacts ERISA class-action cases,” (Employee Benefit News, May 19, 2011)
Lawmakers look to tighten the 401k tap,” (InvestmentNews, May 19, 2011)

Wisdom from Some of Our Favorite Blogs:
401kBasics: Plan Sponsor Quick Tips: Reviewing Your Retirement Plan
fi360 Blog: Fiduciary Links: Disputing the “cost” of fiduciary
fi360 Blog: The Difference Between Suitability and Fiduciary

Hot Tips from Popular Web Resources:
E is for ERISA: DOL Sanctions Plan Sponsor Purchase of Real Property from Plan
Business of Benefits: The DOL’s Proposal to Update ERISA’s Fiduciary Definition: Right Thought, Wrong Approach

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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