Compliance August 20, 2012

DOL Sues Auto Supplier for Diverting Retirement Assets

The U.S. Department of Labor (DOL) is suing to restore $34.6 million in assets to two pension funds for employees of auto supplier Metavation.
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The lawsuit claims Metavation LLC improperly used the funds in violation of the Employee Retirement Income Security Act (ERISA).

According to The Detroit News, the suit, filed in the U.S. District Court in Kentucky, follows a government investigation that found numerous violations beginning in February 2009, just three months after Metavation, formerly Hillside Automotive, had been acquired by Revstone subsidiary Cerion LLC. The DOL said the firms loaned funds to related companies within the Revstone Industries corporate family, and made other improper transactions.  

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The lawsuit says about $12.1 million from the Hillsdale Salaried Pension Plan and approximately $22.5 million from the Hillsdale Hourly Pension Plan were improperly used. 

In addition to Metavation, the lawsuit names as defendants George Hofmeister, chairman and director of Metavation, and Bernard Tew, managing director of Tew Enterprises LLC and Bluegrass Investment Management LLC, two companies that acted as investment advisers to the two plans, the news report said.  

The DOL seeks an order forcing the firms to correct all prohibited transactions, restore losses to the plans including interest and transfer to the plans all gains resulting from their violations. The suit also asks the court to remove the defendants as responsible for the plans, prohibit them from serving as fiduciaries or service providers in the future, and to appoint an independent fiduciary to administer the plans. 

 

In Practice August 20, 2012

Fee-Based Advisers’ Revenue Up 47% Since 2009

Commission-based advisers’ revenue rose 21% in the past three years, a PriceMetrix report shows.

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Additionally, fee-based advisers’ assets under management, returns and quality of clients are considerably better, according to the report, “Transitioning to Fee: Don’t Switch Tracks Without Knowing the Facts.” Total assets under management in fee-based accounts in 2012 were 46% higher than transactional accounts, with fee-based accounts generating an average of $2,900 in revenue, compared with $870 in transactional accounts.


Households with at least one fee-based account generate a return on assets 40 to 70 basis points higher than households that are purely transactional.

“Our report demonstrates the pace at which advisers choose to transition to fee-based accounts has a meaningful impact on their results, not only in terms of assets and revenue growth but also with respect to the quality of the adviser’s book of business,” said Doug Trott, president and CEO of PriceMetrix.

The number of fee-based advisers has grown from 21% in 2009 to 28% in 2012, the PriceMetrix report said. Further, 91% of all advisers have at least one fee account in their book of business. But even for those advisers who are transitioning to fee-only accounts, only 1% have 90% or more of their client assets in fee accounts.

Likewise, customers are holding a mix of fee- and commission-based accounts. These so-called hybrid households, in which a resident holds at least one fee-based account and one transactional account, have grown 41% since 2009.

“Although advisers often think of themselves as either fee-based or transactional, the reality is that most advisers are a little of both,” Trott said. While the trend toward fee-based accounts cannot be denied, the fact of the matter is that today, most clients want a combination of the two, he added.

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PriceMetrix said its report was based on retail brokerage data representing 3.2 million investors conducting 500 million transactions in portfolios totaling $900 billion, in a combination of one million fee-based accounts and four million transactional accounts.

More information about the report is available here: http://www.pricemetrix.com/transitioning-to-fee/ 

 

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