Compliance July 23, 2020

Matrix Trust Co. Accused of Being Deceptive About Fees

The lawsuit says the defendants’ did not disclose that they were retaining non-float and float cash interest and 12(b)-1 fees retirement plan accounts were earning.

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Matrix Trust Co. is facing a 401(k) class action lawsuit from a Minnesota engineering firm that alleges the company took millions of dollars from retirement plan accounts.

MBA Engineering alleges Matrix Trust Co., a subsidiary of Broadridge Financial Solutions, unlawfully retained potentially hundreds of millions of dollars in 12b-1 fees, non-float cash interest and float cash interest from more than 60,0000 customers through nondisclosure and concealment.

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The lawsuit states that the defendants’ key wrongdoings began when they did not disclose that customers’ assets were earning non-float and float cash interest, whether they were earning 12(b)-1 fees and by how much, and that defendants retained that money as compensation. Plaintiffs allege the company failed to disclose that it paid portions of the funds to third parties or parties of interest, and thus violated multiple fiduciary duties under the Employee Retirement Income Security Act (ERISA) and other laws.

As a fiduciary to the plan, the plaintiffs say, Matrix Trust Co. had an obligation to disclose its “right to receive fees and interest as compensation and the amount that [it] would retain on a consistent periodic basis.” By failing to disclose these funds, the defendants caused the loss of millions of dollars, the plaintiffs continue. The plaintiffs further allege the defendants knew they were keeping fees and interest generated by non-ERISA classes, yet never attempted to notify the class, and, as a result, caused harm by losing the funds and earnings that would have been generated. “Therefore, defendants are liable to the non-ERISA class for all harm that they have suffered as a result of defendants’ breaches,” the plaintiffs say.

In a statement to PLANADVISER, Matrix Trust Co. says: “Matrix Trust and its affiliates have provided technology-based solutions to the bank trust and retirement industry with the highest integrity for over 20 years. Matrix vehemently rejects these baseless and unsubstantiated allegations made by MBA Engineering. We have always acted in a manner consistent with our contractual obligations and in full compliance with the law. We will defend ourselves vigorously against the meritless charges and look forward to prevailing in this lawsuit.”

MBA Engineering filed a similar lawsuit in 2018 against Vantage Benefits Administrators Inc., contending the third-party administrator (TPA) stole $2.3 million in retirement assets from the participants in the company’s plans. Additionally, the firm alleged Vantage defendants misappropriated the plans’ assets through 35 fraudulent transfers made by Matrix to Vantage Benefits over the course of 12 months.
Deals & People July 23, 2020

Despite COVID-19, Asset and Wealth Management Deals Surge

Two deals, by Morgan Stanley and Franklin Templeton, stand out, according to PwC.

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In a new report, “U.S. Asset and Wealth Management Deals Insights: Mid-Year 2020,” PwC notes that, despite headwinds from the COVID-19 pandemic and resulting recession, asset and wealth management deals in the first half of the year surged to $19.7 billion, a 47% increase from the first six months of 2019.

Two deals announced in February were responsible for the lion’s share of the action: Morgan Stanley’s proposed $13.1 billion acquisition of E*TRADE Financial Corp. and Franklin Templeton’s purchase of Legg Mason Inc. for $4.5 billion.

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While the onset of the coronavirus slowed activity somewhat in March and April, transactions rebounded in May and June, PwC says.

The 113 deals announced during the first half of the year were on par with the transactions in the first half of 2019. “We expect deal-making to be robust during the remainder of 2020, driven by continued fee pressures and a desire by some firms to gain exposure to credit and other asset classes,” PwC says.

For deals concerning wealth management, there were 55 transactions announced, a 15% increase from the second half of 2019. Deal value rose to $14.6 billion, 12.2 times higher than the same period last year.

For traditional asset management, PwC says, “weak performance and investor redemptions continue to drive transactions. Many firms aim to sharpen competitiveness by increasing scale, and we expect this objective to spur M&A [mergers and acquisitions] during the second half. … We expect dealmakers … will likely favor asset managers that offer increasingly popular products, such as ESG [environmental, social and governance] funds.”

PwC also expects private equity and real estate managers to continue taking minority stakes in asset management firms.

In addition, PwC says, “a growing number of companies seeking liquidity have revived the use of special purpose acquisition companies (SPACs), whose purpose is to use an IPO [initial public offering] to raise capital for an acquisition. Top-tier private equity firms and alternative asset managers are increasingly turning to SPACs.

PwC also expects consolidation among money market funds, as they have been suffering from record-low interest rates.

PwC says there were 23 alternate asset management transactions in the first half of 2020, including minority investments in private equity and venture capital firms, along with a small increase in hedge fund and collateralized loan obligation (CLO) deals. In the first half of 2019, there were 20 such deals. However, the deal value, $107 million, decreased by 62% from the year earlier.

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