Compliance August 2, 2016

Court Finds Union Fund Trustee, Counsel Guilty of Retaliation

The DOL charged that workers for a union trust fund were fired for filing an internal complaint regarding wrongdoing by the trustee and cooperating with a federal criminal investigation.
Reported by

The U.S. District Court for the Central District of California found that the trustee for the Cement Masons Southern California Trust Funds Scott Brain and trust counsel Melissa Cook violated sections 510 and 404 of the Employee Retirement Income Security Act (ERISA) when they caused the firing of Cheryle Robbins and Cory Rice. Robbins and Rice, both of whom served the trust funds, filed an internal complaint regarding wrongdoing by Brain as a trustee and cooperated with a federal criminal investigation. 

A Department of Labor (DOL) news release says that after a five-day trial, the court ruled that Brain, Cook and her firm violated ERISA by suspending and then discharging Robbins, and discharging Rice, because they participated in a complaint against Brain’s unlawful conduct to the General President of the Operative Plasterers’ and Cement Masons’ International Association, and because Robbins cooperated in a federal criminal investigation of Brain.

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The court ordered the permanent removal of Brain as a trustee. It also ordered the permanent barring of Brain, Cook and her law firm from serving the Cement Masons Southern California Trust Funds. In addition, the court ordered Cook and her law firm to repay all attorneys’ fees she billed the trust funds for the actions she took in retaliating against whistleblowers Robbins and Rice.

The decision follows the DOL’s August 2015 success in obtaining $630,000 in lost wages and damages for Robbins, Rice and another worker victimized by Brain and Cook.

NEXT: The case

The case stemmed from the activities of workers who reported on Brain’s interference with collections and contributions from unionized employers. In 2011, Robbins, director of the trust funds’ audit and collections department, responded to a federal criminal investigation into Brain’s activities with contractors. The same year, she and Rice, who worked for a third-party administrator to the trust funds (American Benefit Plan Administrators, now, Zenith American Solutions), participated in an effort to complain about Brain’s interference with efforts to collect delinquent contributions from contractors. Within weeks of this conduct, Robbins was suspended. Less than six months later, both Robbins and Rice were fired.

The court said Brain and Cook “used their positions and influence to cause the other trustees to vote in favor of” suspending Robbins. Months earlier, the court found, Brain and Cook pressured Zenith into firing Rice for his involvement in efforts to make an internal complaint about Brain. 

Dismissing Cook’s argument that she was somehow immunized from her unlawful conduct because she was an attorney to the trust funds, the court noted the “apparent conflict of interest” Cook had in representing the trust funds while being in an undisclosed “romantic relationship” with Brain, which existed as defendants carried out their retaliatory actions. Reminding lawyers of their ethical duties in California, the court cited California Rule of Professional Conduct 3-310(B), which the court explained “requires that an attorney disclose to a client any personal relationship or interest that he or she knows, or with the exercise of reasonable diligence should know, could substantially affect his or her professional judgment in advising the client.”

Data & Research August 2, 2016

Advisers Aren’t Alone in Fretting a Lower-Margin Future

For asset managers operating in an industry historically dependent on traditional active funds to buoy revenue and profits, the push towards index-linked investing can be worrying. 
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New research from Casey Quirk by Deloitte shows index-linked and multi-asset class investment strategies attracted more than 90% of net new money invested worldwide during 2015.

According to the “2016 Performance Intelligence Asset Management Benchmarking Survey,” conducted by Casey Quirk in partnership with McLagan, a provider of compensation consulting services and pay and performance data for the investment management industry, negative returns from global capital markets contributed to low growth overall during the year.

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“Global assets under management barely rose to an estimated $69 trillion in 2015, from $68 trillion in 2014,” the firms report. “Additionally, industry revenue slid to an estimated $344 billion from $346 billion in 2014, with aggregate average fees declining to 50.1 basis points, or 0.501%, from 51.4 basis points, or 0.514%, in 2014.”

Even more troubling, the research shows operating margins at asset managers also fell, from 34% in 2014 to an estimated 32% last year. While still ostensibly high and healthy, a 2% annual drop in margins should worry any prudent business owner about what the future might hold, the research argues.

Of the firms surveyed with more than $10 billion in assets under management, the survey shows “only 56% reported positive net flows in 2015, compared with 60% one year earlier and 63% in 2013.” In comparison, 44% reported net outflows last year, against 40% in 2014 and 37% in 2013.

“Individual investors—increasingly skeptical of active management, fee-sensitive and outcome-oriented—are the drivers of industry growth,” explains Jeffrey Levi, a principal with Casey Quirk by Deloitte. “Through 2020, individual investors are projected to generate 90% of all new money invested, with 10% from institutions.”

The survey further shows flows into lower-margin passive strategies globally doubled in the past two years to reach 72% of the total invested in 2015. As a result, traditional active strategies suffered outflows in 2015 against gains in 2014, and more net new money flowed to multi-asset class strategies—24% of the total compared with 18% in 2014, according to the research.

NEXT: Slowdown in alternatives 

According to the survey data, new investments into alternatives slowed to just 8% percent of total net flows in 2015, down from 10% in 2014.

“Many traditional active managers must adapt because their business models are outdated in a world in which individual investors and their need for advice are the revenue generators,” Levi suggests. “Fees are under increasing scrutiny, and regulatory pressures are on the rise. This shifting marketplace will in turn drive greater convergence in the industry across wealth management, asset management, insurance and financial technology.”

The research concludes that asset owners’ buying preferences are “increasingly diverging as the industry shifts from a product to an advice-orientation.” Four buyer archetypes are emerging—outcome oriented, cost conscious, those influenced by gatekeepers, or those interested in investment quality, Casey Quirk by Deloitte argues.

Survey data suggests the largest group, those who favor traditional investment quality, account for roughly half of industry assets under management, but are projected to shrink in the future. The other three groups will see the majority of growth, researchers predict.

“Winning asset management firms will need to reorient their business propositions, investment capabilities and distribution organizations around one or more of these buyer segments,” according to Adam Barnett, a partner at McLagan. “Asset management firms need to recognize that although the battle for average talent is over, the war for top talent remains fierce, and they must intensify their focus on performance management.”

Additional research and information are at www.caseyquirk.com. 

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