Data & Research August 12, 2022

The LGBTQ Experience With Financial Services

A recent NEFE study examines the broad range of experiences members of the LGBTQ community have had while interacting with the financial services sector.

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In a recent study, the National Endowment of Financial Education explores the experiences U.S. adults who identify as members of the LGBTQ community have had with the financial services sector, with many who say they have experienced some form of discrimination and bias.

The study, “LGBTQIA+ Experiences With Financial Education and Services,” examines a broad range of topics within the LGBTQ community and their interactions with the financial services industry, including their own financial quality of life and their access to financial education.

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The sample included 1,050 adults age 18 and older who identify as any of following: transgender, agender, genderqueer, genderfluid, māhū, muxe, non-binary, questioning, two-spirit, asexual, aromantic, gay, lesbian, pansexual, bisexual, fluid, queer, same-genderloving or stud, according to the study. Also included were individuals who could not find a resonating classification within the gender identity and sexual orientation survey questions.

Roughly half of LGBTQ U.S. adult respondents (47%) said the quality of their financial life is what they expected it to be, while 39% said it is worse than they expected and 14% said it is better than expected, the study states. Nearly two-thirds (60%) said they typically live paycheck to paycheck, while 38% said they do not.

When asked about early financial education, 81% of respondents said they wish they were required to complete a semester or year-long course focused on personal finance education during high school, the study states. Most (86%) think their state should make this a requirement for high school graduation.

Nearly half of respondents (45%) have not had the opportunity to take financial education courses/training in school, the workplace, one-on-one or in another setting, the study states. Those that had the opportunity to take financial education courses or training were most likely to have opportunities through educational institutions such as secondary schools (17%) and colleges or universities (16%).

When asked if they have experienced bias, discrimination or exclusion within the financial services sector, 30% of LGBTQ adults said they have, the study says. Roughly one-third (36%) of LGBTQ respondents felt blocked or discouraged from engaging with financial services and products due to barriers or discrimination in how financial services are designed, marketed or offered.

“When anyone is restricted from fully and fairly participating in the economy it prohibits them from living their best financial life. Marginalizing any group because of their identity severely impacts communities at large and is unacceptable and counterproductive. This is particularly true with financial bias and discrimination,” said Billy Hensley, president and CEO of NEFE, in a press release. “Even in an era where a significant portion of our financial life is happening online and with limited interaction with others, discrimination, bias and assumptions still happen at a much higher rate among members of the LGBTQ community. This population is being pushed aside.”

In addition to sexual orientation, the top identity attributes that led LGBTQ respondents to experience bias, discrimination or exclusion from the financial sector are a lack of wealth or assets (25%), gender identity or expression (25%), ethnicity (25%), education (25%), physical appearance (21%) and race (19%).

Less common identity attributes respondents think led to the experience of bias, discrimination, exclusion and limited access to financial services include mental ability (14%), family composition (13%), physical ability (10%), marital status (11%), religion (8%), lack of access to technology (8%), geographic location (7%) or parental status (7%), the study shows. Five percent of respondents indicated that none of these identity attributes led to their experiencing bias, discrimination, exclusion and limited access to financial services.

Between 10% and 17% of respondents indicated that they experienced bias, discrimination or an inequitable experience in the following contexts: employment or career opportunities (17%), housing (16%), credit (15%), pay (15%), health care (14%), lending (12%) and banking (12%). Ten percent or fewer indicated that they experienced bias, discrimination or an inequitable experience in contexts such as employer benefits (9%), family planning and leave (9%), insurance (7%), tax filing (5%) or estate planning (4%).

“The financial education field still has significant work to do to gather sophisticated data exploring financial issues and challenges within the LGBTQ+ community,” Hensley said. “Through a deeper understanding of how this population is being economically restrained, intermediaries like financial planners, counselors, educators and advocates can better meet the needs to support this community.”

Compliance August 11, 2022

Lawsuit Against Northern Trust Over TDFs Will Proceed

The defendants’ motion to dismiss has been denied.

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A federal judge has refused to dismiss a lawsuit against fiduciaries of the Northern Trust Company Thrift-Incentive Plan that alleges that because the defendants failed to remove underperforming funds from the plan or negotiate lower, reasonable fees, participants’ account balances have suffered.

The defendants moved to dismiss the complaint for failure to state a claim, arguing that the plaintiffs’ allegations are insufficient to lead to a finding that they violated their fiduciary duties. Judge Charles Ronald Norgle of the U.S. District Court for the Northern District of Illinois has denied the motion.

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Norgle noted in his opinion that the plaintiffs allege that the defendants violated their duty of loyalty by selecting and retaining plan investment options that generated unreasonable management fees for Northern Trust and by paying unreasonable recordkeeping fees. Specifically, the plaintiffs take issue with the defendants’ decision to retain the 11 Northern Trust Focus Funds, a target-date fund suite, despite being able to offer allegedly better-performing TDFs at the same or lesser cost.

According to the court opinion, since 2013, the Focus Funds have been the only target-date retirement investing options in the plan, and they were the default investment option for plan participants. Norgle noted that according to the complaint, even before their selection for the plan in 2013, the Focus Funds had underperformed relative to benchmark indices and comparable TDFs for three years.

The plaintiffs also allege that the defendants failed to conduct an appropriately competitive bidding process to negotiate low prices and imprudently selected and retained the higher-cost shares of investment options, when the “only difference between the shares classes is the amount of fees.”

Norgle pointed out that in their motion to dismiss, the defendants largely relied on a 2020 decision in Divane v. Northwestern University, in which the 7th U.S. Circuit Court of Appeals emphasized that “any participant could avoid . . . excessive recordkeeping fees and underperformance . . . simply by choosing from hundreds of other options.” However, he added, in a unanimous opinion, the Supreme Court vacated and remanded that decision in the case now known as Hughes v. Northwestern University. The high court held that the 7th Circuit’s reliance and “exclusive focus on investor choice” was flawed reasoning.

The defendants also cited wording in the 7th Circuit’s opinion in Divane to emphasize that the Employee Retirement Income Security Act does not “mandate what kind of benefits employers must provide” in an employee benefits plan. Norgle agreed that ERISA does not require that a plan offer TDFs, for example, but he pointed out that the plaintiffs are not arguing that it does. “They assert that a failure of adequate fiduciary process can be reasonably inferred from the totality of their allegations,” he noted. Norgle agreed with the plaintiffs’ assertion.

According to the court opinion, in a supplement to their motion to dismiss, the defendants compared their case to Smith v. CommonSpirit Health, in which the 6th U.S. Circuit Court of Appeals opined that “merely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision.” Norgle noted that in contrast to the CommonSpirit case, the plaintiffs in the Northern Trust case “plead consistent, chronic underperformance for a decade.” In addition, he said that the CommonSpirit plaintiffs compared actively managed funds to passively managed funds, which the court described as “comparing apples and oranges,” while the plaintiffs in the Northern Trust case compare the Focus Funds to similar TDFs. “The court is not persuaded that this case is comparable to Smith, and the motion is denied,” Norgle wrote in his opinion.

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