Art by Kyle Stecker
Repeal Battle Parallels Fiduciary Fight
Many in the retirement plan advisory industry are closely watching the Trump
administration’s effort to repeal the Department of Labor (DOL) fiduciary rule,
but the wider financial services community is clearly focused on the related
effort to attack the Dodd–Frank reforms.
Dodd–Frank Wall Street Reform and Consumer Protection Act became law on July
21, 2010, and it was expected to at least peripherally impact the standard of
conduct of those financial advisers who serve as registered representatives of broker/dealers
(B/Ds). The rulemaking mainly affected consumer and investment banks, but the
extent of the changes mandated by Dodd–Frank was massive in scope.
helpful “Dodd–Frank Act: A cheat sheet,” from legal firm Morrison &
Foerster, observes, the term “Dodd–Frank” represents an entire ecosystem of
rules and requirements that are now, to varying degrees, well-established among
the nation’s large and small financial institutions. As with the DOL fiduciary
rule, millions have been spent on compliance efforts marketwide.
Dodd–Frank or the DOL fiduciary rule will be unraveled is still unclear. The
Trump administration cannot simply snap its fingers and undo the amazingly
complex package of rules casually referred to as Dodd–Frank. There are
standards of prudence and process that must be followed in dialing back any properly
established and enforced rulemaking—an area governed by both the Regulatory
Flexibility and the Administrative Procedures acts, as well as by the U.S.
Self-Dealing Suit Permitted to Proceed
court judge has denied most of Edward Jones’ motions to dismiss a lawsuit
alleging the company favored its own investments and those of its “preferred
partners” in its 401(k) plan, at the expense of performance.
that the breach of fiduciary claims against them should be dismissed, the
Edward Jones defendants said they had fulfilled their duties by offering an
array of investment options. Plaintiff Charlene McDonald’s complaint asserts
that defendants violated their fiduciary obligations and affiliated themselves
with funds that benefited defendants at the expense of the plan participants.
U.S. District Judge Rodney Sippell of the U.S. District Court for the Eastern
District of Missouri found Edward
defense that they offered an array of investment options does not insulate them
from McDonald’s claims.
defendants argued that the complaint fails to state a claim for a breach of
fiduciary duties and for a failure to defray plan expenses, but Sippell found
that the complaint, when read as a whole, has provided sufficient facts to
plausibly state the claims. Defendants dispute the complaint’s factual
allegations and argued that they acted within Employee Retirement Income
Security Act (ERISA) standards. “In deciding a motion to dismiss, I must determine
whether the complaint states a claim for relief. Defendants’ arguments in
support of their motion to dismiss challenge the factual allegations of the
complaint and are premature at this stage of the litigation,” Sippell wrote in
JPMorgan Sued Over 401(k) Fees
of the internal JPMorgan Chase 401(k) plan face a proposed class action suit,
being brought by an employee who argues the retirement plan’s fees were not
properly controlled and that conflicts of interest damaged net-of-fee performance.
filed in U.S. District Court for the Southern District of New York, names as
defendants JPMorgan Chase Bank, as well as the company’s board, various benefit
committee members, human resources (HR) executives and others.
complaint echoes allegations that are by now familiar to retirement plan
industry professionals: “Plan’s fiduciaries breached their duties of loyalty
and prudence to the plan and its participants by failing to utilize an
established systematic review of the investment options in its portfolio to
evaluate them for both performance and cost, regardless of affiliation to
JPMorgan Chase … This failure to adequately review the investment portfolio of
the plan led thousands of plan participants to pay higher than necessary fees
for both proprietary investment options and certain other options for years.”
uncertain terms, the lawsuit alleges “blatant self-dealing” that occurred when
fiduciaries “allowed higher than necessary fees to continue to be paid on their
own proprietary options.” Again, like a long list of other proposed class
action suits filed in recent years and months, the plaintiff says the large
size of the plan, valued between $14.64 billion and $20.94 billion during the
class period, should have been enough to allow plan fiduciaries
to negotiate fees down to levels near the lowest available in the
market—regardless of whether a proprietary or outside provider was utilized.