Compliance November 24, 2020

Excessive 401(k) Fee Suit Filed Against Parent Company of Victoria’s Secret

The lawsuit accuses plan fiduciaries of failing to benchmark recordkeeping fees and failing to monitor investment fees, among other things.

Reported by

A former participant in the L Brands 401(k) Savings and Retirement Plan is suing the plan sponsor, its retirement plan committee and unnamed individual fiduciaries for breaching their duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive fees for recordkeeping and investments.

The complaint notes that the 401(k) Averages Book shows the average cost for recordkeeping and administration in 2017 for plans that were much smaller than L Brands’ plan was $35 per participant. It says participants in the L Brands plan were paying $56 per participant throughout the period covered by the lawsuit.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“Given its size and negotiating power, the plan should have been able to negotiate a total recordkeeping and administrative fee significantly lower than $35 per head,” the complaint states. “As of December 31, 2019, the plan had approximately $1.6 billion in assets and 33,761 participants.” L Brands is the parent company of Victoria’s Secret and Bath and Body Works.

The lawsuit alleges that “it is clear that defendants either engaged in virtually no examination, comparison or benchmarking of the recordkeeping/administrative fees of the plan to those of other similarly sized defined contribution [DC] plans, or were complicit in paying grossly excessive fees.”

The defendants are also accused of failing to “monitor the average expense ratios charged to similarly sized plans for investment management fees, which together with the plan’s high recordkeeping and administrative costs renders the plan’s total plan cost (TPC) significantly above the market average for similarly sized and situated defined contribution plans.” The lawsuit says that from 2014 through 2019, the plan paid out investment management fees of 0.38% to 0.46% of its total assets, higher than the average TPC of 0.28% for plans with more than $1 billion in assets, according to a Brightscope/ICI study published in August. According to the complaint, the L Brands plan’s TPC during the period covered by the lawsuit ranged between 0.51% and 0.62% of net assets.

The lawsuit also accuses plan fiduciaries of failing to use the least expensive share classes for mutual funds on the 401(k) plan’s investment menu.

Data & Research November 24, 2020

Investors Less Likely to Heed Advice from Robo Advisers

It appears, according to a survey by Dalbar, that people put more faith in the advice of a human adviser.

Reported by

In “COVID-19 and Robo Advice,” a report from Dalbar, the research firm surveyed 500 investors who had worked with a human adviser and 495 who had worked with a robo adviser this year, and found many investors are more comfortable with human advisers.

Robo investors were generally less likely to follow the recommendation of their adviser than traditional investors. The only recommendation that robo investors were more likely to follow was to invest more (71% versus 68%).

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Reallocating assets was the most common course of action taken by both traditional and robo investors.

Doing nothing and waiting it out was a more common recommendation among traditional advisers and a more common course of action for traditional investors. Traditional investors who were recommended to do nothing followed that advice 73% of the time—making it the most faithfully followed recommendation.

Robo advisers are more likely than traditional advisers to contact clients each month. However, robo investors were twice as likely as traditional investors to be contacted less than once per year, suggesting that robo advisers’ contact with clients is a mixed bag.

Traditional investors were more likely to be contacted by their adviser during the COVID-19 crisis more than once and more likely to be contacted when investors needed advice the most.

The effect of communication timing and frequency of satisfaction were similar for both traditional and robo investors.

Email is the primary vehicle of communication for both robo and traditional advisers. However, robo advisers used more text messages. Robo advisers offer more two-way communication, but traditional investors are more receptive to this.

Robo investors said they were more satisfied with their adviser during the COVID-19 market crisis.

Investor confidence and trust have increased as a result of the COVID-19 market crisis for both robo and traditional investors, but it has risen more among robo investors.

Investors are more likely to retain their adviser after their investment experience during the COVID-19 market crisis, with robo investors more likely to do so.

Ninety percent of robo investors say their account balance is higher because of the help of their adviser, while 75% of traditional investors say the same.

Traditional advisers who did nothing or were recommended to do nothing reported a significantly lower satisfaction rating than investors who were given any other recommendation.

For both traditional and robo investors, there is no discernable difference in satisfaction based on whether they follow their recommendation or not.

Investors between the ages of 31 and 45 had the greatest satisfaction with their advisers during the COVID-19 market crisis, but traditional investors between the ages of 46 and 75 had relatively low satisfaction with their advisers.

Those with higher household income tend to be more satisfied with their adviser, be they traditional or robo. Investors who received proactive communication were significantly more satisfied with their adviser.

Robo investors say doing good for the community, outperforming benchmarks and transparency around performance help build better trust. Traditional investors are most swayed by great customer service.

Both types of investors also like proactive communication.

Two-thirds of robo investors would like to see their robo adviser suggest better ways to protect their investments, a significantly higher portion than traditional investors.

Both traditional (82%) and robo investors (94%) have become more comfortable investing after their experience during the COVID-19 market crisis. Robo investors are most likely to be prepared for the worst, with a defensive posture, while traditional investors are most likely to have a long-term view.

Robo investors are more likely to expect another mass shutdown than traditional investors. They are also more likely to expect a second market crash before the end of the year.

Both types of investor would be willing to earn less on their investments if advisers could guarantee against losses, and traditional investors were more likely to have this sentiment before the crisis.

«