In Practice February 9, 2015

What Will 2015 Look Like?

It wouldn’t be a new year without thinking about the things you’d like to change or improve. We asked retirement plan specialists about progress on their New Year’s resolutions.
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Most in the business (83%) made some New Year’s resolution. Of those responding to our survey, 75% were advisers, 17% were consultants and 8% were third-party administrators.

Retirement plan specialists who made a work-related New Year’s resolution are looking to expand their practice (53%) or improve some aspect of the business (42%). Learning a new skill came in at 21%, and starting a new business line is of interest to a minority (5%).

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Jason Chepenik, managing partner at Chepenik Financial, wants his workforce to test-drive their own retirement. The firm’s unusual resolution is to give employees a 40-hour sabbatical from work—with a proviso. The time must be used for a specific bucket-list item that benefits the employee, their community or the world. It is not a vacation, Chepenik tells PLANADVISER, but an opportunity to take time to examine what life might be like in retirement. The goal is also to produce a book of experiences to share with clients. Chepenik’s own options range from sculpting or serving as a welding apprentice or hiking the Appalachian trail.

Whatever the resolution, actions to fulfill them are being taken across the industry. Some advisers are upgrading websites while others are onboarding newly hired heads of marketing and sales. Still others are adding more people and starting/marketing a new business line. One retirement plan specialist has begun taking the Accredited Asset Management Specialist (AAMS) course; another is taking the Chartered Financial Analyst (CFA) certification program. “Keeping pace with the industry constantly requires new knowledge and skills,” the survey participant explained.

Ongoing strategies are at the core of several respondents’ resolutions:

  • Weekly meeting with partner to review actions taken;
  • Put goals in written business plan and performance evaluation;
  • Creating a business plan and working internally as a group;
  • Working with the team to develop new programs to ensure the participants’ best interests are put first; and
  • Implementing a “12-week year” strategy [based on the book by Brian Moran and Michael Lennington] and saying no to distractions.

Improving some aspect of the business means new marketing initiatives, for some. One firm hired a new head of marketing and sales; another is executing a new marketing plan.

Asking Clients

“We wanted diversity,” says Douglas G. Prince, chief executive officer of ProCourse Fiduciary Advisors. Prince tells PLANADVISER that the firm recently created a client advisory board that comprises a chief executive officer, a chief financial officer, director of HR, director of total rewards, and a chief operating officer. The board gave ProCourse a number of ideas for resolutions this year. These included things like examining how and when clients wanted to receive communications; effectiveness of firm branding and what differentiates the firm; ideas on making the firm’s reporting more useful; and ideas for better employee communication. “It is great to get direct stakeholder feedback,” Prince says. “We resolve to repeat this process again this year.”

How are the resolutions going? So far, so good. One survey respondent has two new 401(k) plans. Another says that sales are up 10% over the same period last year. “I have more prospects than I normally would, and hopefully going to start closing more deals as a result,” says one respondent.

“The rigorous study schedule, 300 hours needed from January to June, has kept me busy,” says the participant who started the CFA certification. “The new information is immediately applicable and flowing through to my practice—we’re further expanding our Code of Ethics at this point.”

Other responses are:

  • Everyone is jazzed up over it;
  • Already receiving indications of interest, proposal requests and meetings;
  • We have already begun seeing the new business line pay off; and
  • We have been invited into a few new opportunities through our CPA outreach.

Some resolved to keep work in perspective. J. Kevin Stophel, an adviser with Kumquat, a wealth management firm, says his resolution is to keep work from hijacking and dominating his life. “I have made integrating my family, health and non-financial interests into my weekly schedule intentionally and not allocating those areas the leftovers,” he says.

Thanks to everyone for answering! We'll ask for your opinion again soon.

Compliance February 9, 2015

Aegon Sued Over Management of Its Retirement Plan

A lawsuit claims retirement plan provider and asset manager Aegon USA caused superfluous fees to be charged to its own retirement plan.
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A participant in the Aegon Companies Profit Sharing Plan has sued Aegon USA, some of its subsidiaries and trustees of the plan, alleging they violated the Employee Retirement Income Security Act’s (ERISA) requirement to act for the best interest of plan participants.

The complaint says the defendants burdened the plan with layers of superfluous fees; the plan pays fees higher than its peers; and the fees go mostly to Aegon, which serves as recordkeeper and investment manager for the plan through its affiliates Transamerica Asset Management, Transamerica Financial Life Insurance Company, and Diversified Retirement Corporation—now rebranded as Transamerica Retirement Solutions.

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In a statement to PLANADVISER, the company said: “Reflecting our core mission, Aegon and Transamerica provide retirement plans and matching contributions to our employees to help them prepare for a secure and confident retirement. We remain deeply committed to fair and transparent communications with our employees regarding fees and expenses associated with employees’ retirement plans.

Our business complies with all applicable state and federal statutes and regulations, and participates in periodic regulatory reviews. The allegations asserted against the Aegon/Transamerica employees’ retirement plan are without merit.”

According to the court document, Aegon has placed many of its investment products in the plan, including at least 16 Aegon-managed investments in collective trusts or pooled separate accounts. The collective trusts and pooled separate accounts charge investment management and portfolio administration fees for managing the securities in the portfolio. However, the lawsuit alleges the manager of each collective trust and pooled separate account does not manage a portfolio. Instead, each such commingled fund simply reinvests in an Aegon mutual fund of the same asset class and strategy, which the complaint says has the effect of layering a superfluous and excessive investment management fee on top of the fees charged to the mutual fund. Aegon collects this fee.

The lawsuit also alleges Aegon does not manage the portfolios of the underlying mutual funds, but hires subadvisers to manage the portfolios, yet it charges a substantial adviser fee for picking a subadviser to do the portfolio management. The suit says this is another superfluous fee on the plan for Aegon’s benefit.

Aegon also has included its stable value fund in the plan. The stable value fund has opaque fee structures and credits interest to investors solely at the discretion of Aegon. The lawsuit alleges the wild swings in the crediting rate within a given year under the stable value fund demonstrate that the crediting rate is not tied to market performance, but, rather, to benefit Aegon where it sets the crediting rate arbitrarily and based on whatever spread it wants to collect between its return on investment and the crediting rate.

The court document also says that Aegon, as recordkeeper to the plan, does not require all revenue-sharing payments that exceed the recordkeeping costs of the plan to be rebated to the plan, but kept those payments, which the suit alleges exceeded reasonable fees by hundreds of thousands of dollars annually. In addition, Aegon allegedly keeps any interest earned on cash proceeds from liquidated participant accounts—called float income—and uses that money to purportedly pay plan expenses. 

The lawsuit charges that rather than fulfilling its ERISA fiduciary duties by offering the plaintiff and other participants in the plan prudent investment options at reasonable cost, the defendants acted out of a conflict of interest and selected for the plan and repeatedly failed to adequately monitor and remove or replace Aegon-managed investment products with excessive fees. 

The complaint says a prudent and loyal fiduciary for a mega plan—like Aegon’s more than $1 billion plan—uses the bargaining power of the plan to negotiate low fees from investment managers. 

The plaintiff cites a BrightScope and Investment Company Institute publication that says mega plans have a median asset-weighted total fee of 30 basis points. This includes investment management fees, administrative fees, and other fees such as insurance charges. According to the compliant, the Aegon plan paid weighted average fees of more than 160 basis points in each year of the period relevant to the lawsuit on its investments in the Aegon separate accounts alone. 

This is triple the amount paid by other $1 billion plans even in the 90th percentile of high fees reported in the Investment Company Institute report, the plaintiff estimates, and this does not include additional insurance charges or administrative fees, or fees charged by the Stable Value fund or the Diversified Collective Trust. 

The lawsuit says the exorbitant fees paid by the plan to Aegon are reflected in the plan’s investment returns, which are net of fees. According to a report generated by a service called Retirement Plan Prospector, as of year-end 2013, the plan’s five-year rate of return as compared to plans of similar asset size is -175.58%. The plan’s three-year return as compared to peer plans is -405.31%. 

The lawsuit asks the court to order defendants to disgorge all fees received from the plan, directly or indirectly, and profits thereon, and restore all losses suffered by the plan caused by the breaches of ERISA fiduciary duties, as well as pay equitable restitution and other appropriate equitable monetary relief. 

The complaint in Dennard v. Aegon USA is here.

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