1 / 18

Fiduciary Responsibility for New Products & Services

Fiduciary Responsibility for New Products & Services. John K. Barry September 27, 2006. Fiduciary Responsibility For New Products & Services. Automatic Enrollment Mapping Lifecycle Funds Revenue Sharing Service Providers as Fiduciaries .

makoto
Download Presentation

Fiduciary Responsibility for New Products & Services

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Fiduciary Responsibility for New Products & Services John K. Barry September 27, 2006

  2. Fiduciary Responsibility For New Products & Services Automatic Enrollment Mapping Lifecycle Funds Revenue Sharing Service Providers as Fiduciaries

  3. Liability requires combination of two elements: Breach of Duty Economic Loss Particular details of “Duty” will be determined by majoritarian performances and standards. Trustee Liability In Connection with New Products

  4. Trustee Liability in Connection with New Products Liability for new products will reflect the rules of the old: Liability for mistake is rare; liability for an interested transaction is automatic. Government Plans do not have the certainty of ERISA structure that provides specific transaction clearance.

  5. Prudence is the duty to competently follow instructions. Decision to use Automatic Enrollment is not always a fiduciary decision. Execution of Automatic Enrollment is a fiduciary responsibility Prudence determined by majority consensus of appropriate social norms. Automatic Enrollment

  6. Automatic enrollment is “prudent” because: IRS Ruling & Regulation Department of Labor Advisory Opinions Trends in Social Research Retirement Plan Statistics The definition of prudence will be affected by experience. Automatic Enrollment

  7. Prudence is satisfied by the Trustee’s accounting - an accurate statement of account and well executed communication material. Prudence as dependent on overall competent administration – the value of the professional partner. Automatic Enrollment

  8. Defined: Direction of money to an investment option selected by the Trustee. Mapping: Trustee selection when fund is closed. Default: All other circumstances such as automatic enrollment. Mapping & Default Investment

  9. Modern Pension Trust relies on Individual Choice - a shift of responsibility from Trustee to Employee. This inherently restricts Trustee liability. Mapping organizes choice but does not replace it. Mapping is supported by the tradition of the Trustee’s accounts. Mapping is supported by Trustee obligation to monitor and replace available choices. Mapping & Default Investment

  10. A: Comparable Option B: Safe Option C: Reasonable Option Traditional Mapping : A Traditional Default: B Emerging Professional Consensus: C Mapping & Default Choices

  11. Liability Determined by Action and Choice. Trustee’s account inherently limits liability for automatic enrollment choices. Duty of competent execution for movement of existing balances. The Exclusive Benefit Rule and recent litigation – liability for self-interested choice of default option. Mapping/Default & Trustee Liability

  12. Defined: A fund that changes it’s investment allocation and strategy to correspond with the age of the investor. Are Trustee responsibilities different for lifecycle funds? Alteration of Mapping and Default Practices through use of lifecycle funds as evidence of different responsibilities. Trustee Recommendation of Lifecycle Funds. Lifecycle Fund

  13. The duty of fair and accurate recommendations. The duty of competent execution. The risks of the stock market. The risks of the exclusive benefit rule. Lifecycle Fund

  14. The payment of rebates by mutual fund sponsors to encourage investment relationships. The conflict between different classes of investors and reasonable reimbursement of expenses. Lack of models or rules to support existing practices – the absence of the crowd; spinning, framing and the effect of language. Revenue Sharing

  15. Fund Sponsor decision to pay rebates is not typically a fiduciary decision. Fund Sponsor decision to pay rebates may be a fiduciary decision if Sponsor assumes a significant role in Plan administration – such as development of communication materials that steer investment away from funds that do not pay rebates. Revenue Sharing

  16. Market Timing Investigations as guideline for Sponsor practices. Document Practices with Compliance Department. Seek rulings from NASD and SEC Disclose rules, practices & amounts to interested parties. Fire employees that seek to abuse the rules. Revenue Sharing

  17. Trustee Liability Importance of Exclusive Benefit Rule. Trustee’s duty to account for receipts and expense. Trustee duty of disclosure. The advantages of participant distribution. The duty to avoid misdirection in multi-plan administration. Revenue Sharing

  18. The ERISA exemption for government plans as expanding the definition of fiduciary. The Spitzer Investigations. The Emerging Bear Market - - Dow 11,000 Who is a Fiduciary?

More Related