Products January 9, 2014

New Firm Supports Non-Fiduciary Advisers

Fidelis Fiduciary Management launched an independent investment management program for financial advisers who cannot or choose not to serve as fiduciaries for their 401(k) clients.
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The new program is headed by Michael Montgomery out of Tampa, Florida. Montgomery says the fiduciary management program is designed to address two gaps he believes exist in the fiduciary services marketplace—insufficient flexibility and lack of interaction with advisers.

To address these gaps, Fidelis provides customized investment lineups and monitoring for plan sponsors, utilizing the investments available from virtually any recordkeeping platform while working closely with the plan’s financial advisers.

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Fidelis offers these services as an Employee Retirement Income Security Act (ERISA) 3(38) Investment Manager, meaning it accepts responsibility for managing a plan’s investment menu. The firm can also serve in an ERISA 3(21) capacity, making recommendations for final approval by the plan sponsor.

“Because the big brand fiduciary services are often paired with their client’s recordkeeper, 401(k) advisers who want outside fiduciary support currently don’t have much of a voice,” says Montgomery. “If an advisor deals with multiple recordkeepers, they may be juggling several investment fiduciary services, which in turn may change if their client moves to a new recordkeeper.”

“This piecemeal approach is confusing and difficult to manage,” he adds.

According to Montgomery, Fidelis Fiduciary Management offers advisers the opportunity to retain a single fiduciary service that can be used for all of their clients and for virtually any of the investment products offered by major recordkeepers.

Fidelis Fiduciary Management is CEFEX certified by the Centre for Fiduciary Excellence for defined contribution ERISA fiduciary services, including plan-level ERISA 3(38) investment management.

Compliance January 9, 2014

Stifel, Nicolaus Consents to FINRA Fines

The Financial Industry Regulatory Authority (FINRA) has ordered Stifel, Nicolaus & Company, Incorporated and Century Securities Associates, Inc. to pay fines and restitution to customers in connection with sales of leveraged and inverse exchange-traded funds (ETFs).
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St. Louis-based broker/dealers Stifel and Century are affiliates and are both owned by Stifel Financial Corporation. Stifel agreed to pay a fine of $450,000 and to make restitution of nearly $340,000 to 59 customers. Century agreed to pay a fine of $100,000 and to make restitution of more than $136,000 to six customers. In settling this matter, Stifel and Century neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

In a statement to PLANADVISER, the company said, “Stifel and Century are pleased to have resolved this matter. We will continue to serve our clients consistent with their investment goals.”

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FINRA explained that leveraged and inverse ETFs “reset” daily, meaning they are designed to achieve their stated objectives on a daily basis so their performance can quickly diverge from the performance of the underlying index or benchmark. It is possible that investors could suffer significant losses even if the long-term performance of the index showed a gain. This effect can be magnified in volatile markets.

FINRA found, between January 2009 and June 2013, Stifel and Century made unsuitable recommendations of non-traditional ETFs to certain customers because some representatives did not fully understand the unique features and specific risks associated with leveraged and inverse ETFs; nonetheless, Stifel and Century allowed the representatives to recommend them to retail customers. Customers with conservative investment objectives who bought one or more non-traditional ETFs based on recommendations made by the firms’ representatives, and who held those investments for longer periods of time, experienced net losses.

FINRA also found Stifel and Century did not have reasonable supervisory systems in place, including written procedures, for sales of leveraged and inverse ETFs. Stifel and Century generally supervised transactions in leveraged and inverse ETFs in the same manner that they supervised traditional ETFs, and neither firm created a procedure to address the risk associated with longer-term holding periods in the products. Further, both firms failed to ensure that their registered representatives and supervisory personnel obtained adequate formal training on the products before recommending them to customers.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck, accessed at www.finra.org/brokercheck or by calling (800) 289-9999.

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