Questions about where asset managers' and financial advisors' responsibilities to clients lie are being clarified in regulatory and court decisions now on the horizon — and the answers appear to be moving in the direction of fiduciary obligation.
On Friday, a federal trial court in Connecticut ruled against the insurance company ING concerning its status as a fiduciary in defined contribution plan administration.
Healthcare Strategies, sponsor of a retirement plan that ING administers, claims that ING made fund choices for its guaranteed investment contract investment option based on the revenue-sharing benefits the company receives rather than choosing the most optimal choice for plan participants.
The Healthcare Strategies case received class-action certification, meaning that ING's conduct in all plans it administers is at stake. The multinational insurance company sought to summarily dismiss the claim on the basis that it is legally entitled to act as alleged.
But the court held that material issues of fact exist and scheduled a trial to commence Sept. 3.
The National Association of Plan Advisors' Fred Barstein observes that the Connecticut court steered away from a 7th Circuit precedent that centers plan providers' liability in plan changes that are actually made and toward court decisions in its own 2nd Circuit that maintain a stricter standard based on the provider's mere ability to make changes.
At issue will be the plan provider's discretion to manage investments and whether its ability to make fund changes (from which it can materially benefit through revenue sharing) make it a fiduciary under ERISA regulations.
The Department of Labor nearly put one advisor out of business recently because the advisor failed to disclose revenue sharing that amounted to 10 times the contracted fee, FRA Plan Tools has reported. That case ultimately was settled, with the retirement plan advisor paying more than $200,000 and agreeing to future disclosures.
The fiduciary duty inherent in retirement advice is heating up currently in a DOL regulation concerning IRA accounts expected in a matter of weeks.
