Data & Research April 29, 2015

Retirement the Top Investment Goal of Affluent

Nine in 10 affluent investors, defined as those with $250,000 or more in investable assets, say their most important investment goal is retirement related—50% intend to generate income and 41% want to accumulate savings for their golden years.
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Just 5% say creating a legacy for their heirs is a top priority.

Affluent investors are more likely than the general population to seek help from an adviser—60% versus 39%–and more than half of affluent investors first met with an adviser before age 44, rather than waiting until they approach retirement. Most affluent investors (57%) say their adviser is their most reliable source of financial information, compared with financial newspapers (23%) and websites (20%).

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“Advisers can offer individuals long-term perspective on investing and help them make smart decisions when they experience market volatility or major life changes, so they can stay on the path to a secure financial future,” says Kathie Andrade, executive vice president, head of Individual Advisory Services (IAS) at TIAA-CREF. “Retirement can sometimes last 20 or 30 years or more, so individuals need to strike the right balance between shorter-term financial priorities and long-term planning, to help ensure they’ll have income to last throughout their retirement.”

In times of market stress, investors with financial advisers were more likely than others to ride out the storm because their portfolio was prepared for volatility—53% versus 41%.

Nearly two-thirds of affluent investors claim to be bullish on the economy, and the most common investments within their portfolios are stocks (76%) and mutual funds (73%). Sixty-three percent believe stocks present the best opportunity for growing their wealth, while just 12% favor real estate.

While the wealthiest investors are more optimistic about the economy—70% of those with $5 million or more in assets believe the economy is strong, compared with 57% of those with less than $500,000—more male investors report being confident than do women, at 73% and 51%, respectively.

Among those with doubts, the biggest concern is losses due to market downturns, cited by 35%. Twenty-eight percent say geopolitical instability would likely make them feel less confident in the economy, while 24% cited market volatility and 17% said higher unemployment rates.

The 2015 TIAA-CREF Affluent Investor Barometer, conducted by an independent research firm, polled a nationwide sample of 1,242 randomly selected adults who are financial decisionmakers for their household and have at least $250,000 in investable assets.

Compliance April 29, 2015

DOL Sues City National for Profit Sharing Plan Practices

A lawsuit filed by the Labor Department alleges excessive fees were charged to participants in the City National Corp. Profit Sharing Plan, leading to a breach of federal law and the Employee Retirement Income Security Act.
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The Department of Labor (DOL) says the fiduciaries of the City National Corp. Profit Sharing Plan caused the plan to lose more than $4 million—while at the same time the fiduciaries engaged in self-dealing and conflicted transactions that enriched themselves and their employer. According to a complaint filed in the U.S. District Court for the Central District of California Western Division, the self-dealing and conflicted transactions involving plan assets resulted in excessive fees going to City National Bank and its affiliates.

Defendants named in the suit include City National Bank and a number of executives in human resources, compliance and senior management. Crisanta Johnson, the Los Angeles regional director for the Employee Benefits Security Administration (EBSA), says the case is significant because “we have a financial institution reaping excessive profits from the plan that its employees participate in.”

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“All of this could have been avoided if the fiduciaries had simply reimbursed themselves in accordance with the law,” she notes. “Instead, they created a payment scheme that drained plan assets.”

Johnson says an EBSA investigation found that, through the end of 2011, “plan fiduciaries and affiliates received millions of dollars in compensation, commissions and fees at the expense of the plan. Rather than outsource plan services to avoid potential conflicts of interest, or reimburse themselves for only direct expenses, City National Bank and other fiduciaries established compensation rates for the plan on par with those charged to the bank’s retail clients. By doing so, they created conflicts that resulted in multiple breaches of the Employee Retirement Income Security Act.”

DOL alleges the compensation issues were compounded because City National Bank employees were not required to track the amount of time they spent working on plan issues. This allowed large and unreasonable fees to be charged to the plan, according to the complaint. Proper tracking and monitoring of expenses could have prevented this and limited plan expenses, Johnson adds.

The investigation was conducted by the Los Angeles Regional Office of the Employee Benefits Security Administration, and the case is being litigated by the department’s Regional Office of the Solicitor in San Francisco.

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