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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 5/27/11

May 31
00:21 2011

1020805_25983300_Trending_Topics_2011.05.27_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:
How Babe Ruth Can Help 401k Plan Sponsors Teach Employees the Most Important Thing They Need to Know,” (Fiduciary News, May 28, 2011). Time diversification remains controversial. This article – the last in a series of five articles detailing the 1st Deadly Sin (“Income Matters”) – explains why the practitioners have one up on the academics.

ETFs – More New Stuff, but…:
The knock on ETFs has been they’re only good for passively managed portfolios. Just as a new slew of actively managed ETFs are popping up, there’s now a growing question if these are just the next meltdown waiting to happen.
Mutual Funds Race to Join ETF Fray, But With Active, Pricier Offerings,” (Wall Street Journal, May 24, 2011) Despite the “pricier offerings” warning, this is good news. With more actively managed ETFs, investors will begin to have real choices in the ETF vs. mutual fund decision. It will also remove the generic “ETFs are cheaper than mutual funds” mantra as, even today, actively managed ETFs fees range from less than the average mutual fund expense ratio to double the average mutual fund expense ratio. Here’s the real killer, though: In the face of claims that index funds will prevail, the chart accompanying the story shows the lowest cost actively managed ETF trails the index while the two high cost actively managed ETFs have produced returns many times higher than the index. Once again, you get what you pay for.
Are Actively Managed ETFs Ready For Primetime?” (Financial Planning, May 24, 2011) It’s clear actively managed ETFs represent the greatest growth opportunity for the ETF industry. This article explains why practical barriers exist which have discouraged the creation of actively managed ETFs. For example, one of the key “advantages” of ETFs – transparency – turns out to be a disadvantage for active managers (because it allows free-riders to copy the portfolio without actually buying the ETF).
ETFs The Next Financial Time Bomb?” (Financial Advisor, May 24, 2011) Oh,oh. Just when it looked like it was safe to get pack into the water. This is an interesting thesis – that ETFs are mimicking the “shadow-banking” environment that nearly brought down the world’s economy in 2008. What’s not clear is if it pertains only to index-based ETFs (by far the bulk of all ETFs). Ironically, this scenario was humorously address last year in the article “3 Reasons to Outlaw Index Investing Right Now (and One Selfish Reason Not To) in 5 Acts,” (Fiduciary News, May 12, 2010).
Time to outlaw ETFs?” (BenefitsPro, May 26, 2011) Here’s the economic argument of the above article, complete with the obligatory reference to Dr. Seuss.

Fiduciary – A Great Idea, but…:
“A vineyard? Give me a break.” That commercial grates like fingernails across a chalkboard. It ranks of hypocrisy, just like much of what you’ll read below about the recent rantings of industry leaders.
FINRA’s Ketchum: Disclosure a ‘Key Ingredient’ to Fiduciary Duty, but Not Sufficient Alone,” (Advisor One, May 24, 2011) Ketchum, who’s probably responding to the growing chorus in opposition to having FINRA serve as the SRO for RIAs, apparently hasn’t ever heard the story about the camel’s nose under the tent. Bottom-line: FINRA still feels it’s OK for a fiduciary to engage in a self-dealing transaction.
FINRA Annual: LPL’s Casady, BofA’s Krawcheck Urge Caution on Single Fiduciary Standard,” (Advisor One, May 23, 2011) Do remember the comic routine where the disagreeing party sincerely acclaims “Yes, yes, yes!” while physically shaking his head back and forward saying “No, no, no!” To summarize the agreement of the big brokerage firms, “Sure, we think the fiduciary standard is an absolutely fantastic idea and we whole-heartedly endorse. But, think the DOL just needs to take a little of time to really think about the implications. Can we pencil you in for, say, the 12th of Never?”

Fees – It’s the End of the World as we Know It, but…:
After all the shouting, now we find out 12b-1 fee reform (meant to eliminate conflicts of interest from being shoved down the throats of naïve customers) really won’t have such as bad an impact on firms as the industry originally led us to believe. Surprised? Anyone? Anyone? …Bueller?
Bite from 12b-1 fee reform should be ‘modest’ for most firms: KBW,” (InvestmentNews, May 26, 2011) According to the article, Waddell & Reed Financial Inc., Calamos Asset Management Inc. and Franklin Resources Inc. are expected to be hit the hardest by the reform.

Investments – Having More Options is Great, but…:
Behavioral psychologists have chronicled the effects of analysis paralysis. Common sense says more options gives the decision maker a better chance of picking the right choice. In reality, it only makes it harder to decide.
Investors Now Pick Twice as Many Funds for Retirement: Millionaire Corner,” (Advisor One, May 20, 2011) Twenty years ago they laughed when forward thinkers expressed concern about the over-diversification caused by investing in too many mutual funds. The future is now, folks. What are you going to do about it?
Retirement plans struggle with annuity issue,” (MarketWatch, May 2011) The article doesn’t say it, but annuities seem more like a solution seeking a problem. On the other hand, they might just be a problem all by themselves.

Pensions – Here’s a Great Employee Benefit, but…:
Talk about your Faustian Bargains, pensions were great for your parents, as long as they didn’t mind destroying the grandkids’ economy. They would have seen it coming, too, but they were too busy buying knick-knacks for the grandchildren.
Do we offer a pension? Are you kidding me?” (BenefitsPro, May 24, 2011) This is an excellent article written from the point of view of a gen-Xer. It clearly spells out why this is the last generation who will see pensions.
Outlook mixed for public pension funds: study,” (Reuters, May 24, 2011) Boston College finds that, even with a growing stock market and shrinking employee base, public pensions are still problematic.

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.
Recession causes workers to delay retirement,” (BenefitsPro, May 23, 2011)
403b Plans Increase Use of Advisers and Online Communications,” (, May 23, 2011)
Why Bill to Limit 401k Loans Is Dangerous,” (, May 23, 2011)
Youngest participants have high exposure to equities in 401k plans,” (Employee Benefit News, May 24, 2011)
Workers stashing money in 401k plans at record rates,” (Reuters Wealth, May 24, 2011)
403b Plans Increase Use of Advisers and Online Communications,” (, May 24, 2011)
Buffalo Bills Halt 401k Plan Contributions,” (, May 23, 2011)
Stern Advice: Retirement number that’s changing the debate,” (Reuters, May 25, 2011)
Too many rainy days,” (BenefitsPro, May 26, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Annuity sales, concerns on the rise
401kBasics: Plan Sponsor Quick Tips: Understand Your Plan Terms
Fiduciary Pro: Bundled 401 Plans May Be Ripping Off Your Clients
fi360 Blog: Practice 3.2: Applicable “safe harbor” provisions are followed

Hot Tips from Popular Web Resources:
McGuireWoods: CIGNA v. Amara: Supreme Court Addresses Remedies for Violation of ERISA Disclosure Rules

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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