Compliance September 16, 2011

Former TCW Fund Manager Liable for Stealing Trade Secrets, but Wins Pay Claim

Star bond investor Jeffrey Gundlach was awarded $66.7 million by a jury over his separation from money management firm Trust Company of the West (TCW), reports Reuters.
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A California jury awarded TCW no punitive damages, but found that Gundlach and his co-defendants breached their fiduciary duty to the firm and took trade secrets.

The verdict comes after a six-week trial, which put the fund manager against his former employer. Reuters reports that both sides sued each other after Gundlach was fired from TCW in December 2009, then established a rival money management firm, DoubleLine Capital (see “Former TCW Fund Manager Launches New Funds”).

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TCW accused Gundlach of stealing trade secrets, plotting to form a new company using TCW proprietary information, and gutting the firm of its entire mortgage-backed securities team. Gundlach filed a counter-lawsuit, alleging his former employer owed him hundreds of millions of dollars in compensation, and had secretly plotted to fire him when he was the company’s CIO.

After his termination, Gundlach formed DoubLine with three of his co-defendants in the trial. A total of approximately 45 TCW employees, largely from the mortgage-backed securities group, joined his company.

Reuters notes that Gundlach’s new mutual fund, the DoubleLine Core Fixed Income Fund, gained 11% over the past 12 months, beating all of the more than 1,000 competing funds in its category, according to Morningstar.

After the verdict, TCW attorney Susan Estrich said the company plans to seek $89 million in damages from the judge for the trade-secret violation.

The case is Trust Co of the West v. Jeffrey Gundlach et al.  

Data & Research September 16, 2011

More than a Third of Retirees Receive Income From Annuities

According to a recent LIMRA study, 35% of all retirees receive income from an annuity.
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LIMRA found the likelihood of taking income from an annuity increases with age. Only 19% of retirees under age 65 receive income from an annuity, but the number jumps to 49% when looking at retirees ages 75-79.

“The majority of current retirees relies primarily on pensions and social security to meet their daily expenses, with annuities making up only 4% of their income,” noted Jafor Iqbal, Associate Managing Director, LIMRA Retirement Research. “But in the coming years, we expect to see fewer Americans retiring with pensions and more relying on their personal savings to fund their retirement. Annuities will provide a reliable way to convert that savings into a guaranteed income stream.”

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The survey found household income has little effect on whether retirees receive income from an annuity. About a third of retired households with incomes under $75,000 rely on income from an annuity; for retired households with incomes of more than $75,000 the percentage increases about five points. 

Retirees with household assets under $100,000 are about half as likely to receive income from an annuity (22%) as those with assets of $250,000 to $499,000 (45%). About 4 in 10 retired households with assets above $500,000 receive income from an annuity.

Only one-fifth of retirees who are receiving income from an annuity say they have received it from an immediate annuity.  The study found that all other annuity income recipients are taking withdrawals from their deferred annuities. 

“All of our research has revealed that consumers are attracted to guarantees with their financial products – especially when the economy is performing poorly,” said Iqbal.  “This holds true for retirees as well.  Our study found that 40% of retirees receiving income from annuities say their annuity income is guaranteed for life.”

The online survey was conducted in October 2010.  Qualified respondents were ages 55 to 79; had been retired for at least one year and had not worked for pay within the past year; and had household incomes of at least $35,000.

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