A financial consultant advises clients of an investment bank or financial services company on the best way to manage their money. This memorandum discusses three recent cases in which financial services companies have escaped liability for their advice to plan sponsors. Otherwise, employers will continue to be misled by many financial services firms into reliance upon their recommendations, and will incur liability, even as those insurance companies and broker-dealer firms usually escape liability for the advice they have provided. However, when sued, Fidelity stated that they were not responsible for any decisions of the company because they (Fidelity) were not a fiduciary.
This recent court decision illustrates how employers acting as plan sponsors, who are fiduciaries under ERISA, cannot hold to account many of the insurance companies and broker-dealer firms. A Fidelity Investments affiliated company, Fidelity Research, served as the investment adviser to the Fidelity mutual funds which were offered by the 401(k) Plan and invested the balances of bank accounts, which held plan contributions in overnight securities. When revenue sharing was used to pay Fidelity Trust, its fee grew as the assets of the Plan that provided revenue sharing grew, even if Fidelity Trust provided no additional services to the Plan.
The trial court found that the 401(k) plan overpaid for the recordkeeping services provided by Fidelity Trust, as the revenue sharing generated for Fidelity by the funds in the 401(k) plan assets far exceeded the market value for recordkeeping and other administrative services provided by Fidelity Trust. Ron is a frequent speaker at national conferences in the financial planning and investment advisory professions.
The plan participants also alleged that Fidelity Trust plays a central role in the selection of the investment options the Plan makes available to participants,” because Fidelity Trust does the first-cut screening of investment options, and has veto authority over the inclusion of investment options available in the Plan ” (Am. The result was, over time, the use of these out-dated regulations by insurance companies and broker-dealer firms to escape liability for their investment advice, in most instances.
CEOs and paid lobbyists from Wall Street firms and the insurance companies are visiting Washington, DC, each and every day, to do everything in their power to stop this rule. Protect our fellow individual Americans and enable their retirement nest eggs to expand and grow much larger, for the sake of their own financial security in retirement. Being a professor of finance, and chair of the Financial Planning Program at Western Kentucky University, and also serving on many professional associations over the years, has afforded me the opportunity to visit with practitioners – during conferences, at luncheons, and in their own offices.