In Practice May 8, 2009

Are Headlines Disrupting Your Business?

Surveyed advisers agreed that legislation and ongoing industry scandals are a threat to restoring revenues.
Reported by

A poll by SEI asked about 200 advisers what they felt to be the biggest threat to efforts to restore firm revenue (other than market performance). The ability to attract new clients was the number one response (33.3%), and the threat of legislation and industry scandals came in a close second (29.8%), according to a release of the results.

The survey also explored the effect of the media on the client relationship process. More than half (54.3%) of advisers said many of their clients had raised issues about their investments, specifically citing something they’d seen in the news, according to SEI. Almost 40% of advisers agreed that the media effect led clients to “being more panicked than ever.’ About a quarter of advisers said their clients are beginning to doubt the media or question its credibility.

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While some advisers (11.7%) thought the media helped make conversations more constructive, even more (19.3%) felt time spent explaining what stories mean is making their conversations with clients less productive, according to the results.

“The flood of information from so many different places is incredibly confusing for clients,” said Chuck Carrick of DMJ Advisors in Greensboro, North Carolina, in the release. “As trusted advisers, the best thing we can do is proactively communicate, educate clients about the facts, and advise them on any implications to their own portfolios.”

 

Compliance May 7, 2009

GM Single-Equity Suit Falls

A group of General Motors defined contribution plan participants cannot proceed with their lawsuit claiming GM had improperly included undiversified single-equity funds in its plans.
Reported by

The Employee Retirement Income Security Act (ERISA) only requires overall plan level investment diversification. That was the ruling from the 2nd U.S. Circuit Court of Appeals in a case discussing a fiduciary’s responsibility to properly diversify plan investments. Hearing the case were Circuit Judges Rosemary S. Pooler and Sonia Sotomayor and U.S. District Judge Mark R. Kravitz, of the U.S. District Court for the District of Connecticut.

The appellate judges upheld a lower court ruling dismissing the suit that named General Motors Investment Management Corp. (GMIMCO) as a defendant after finding participants had filed it past the applicable legal deadline. However, in agreeing that the participants’ suit should be thrown out, the appellate panel focused instead on what it said were unsubstantiated legal claims that the inclusion of the single-equity funds violated ERISA Section 404(a)(1)(C)“s diversification requirements.

“The complaint’s narrow focus on a few individual funds, rather than the plan as whole, is insufficient to state a claim for lack of diversification,” the appellate court said.

In addition, the court found that the participants could not continue with their claim that GMIMCO knew or should have known that the fees and expenses it paid for mutual funds in which it invested were excessive compared with alternative investments. The court said the participants did not provide a basis on which it could infer that GMIMCO’s offering of the funds was a fiduciary breach.

The suit covered four GM defined contribution plans, the:

  • General Motors Savings-Stock Purchase Program for Salaried Employees in the United States
  • General Motors Savings Plan for Hourly-Rate Employees in the United States
  • General Motors Income Security Plan for Hourly-Rate Employees
  • Saturn Individual Savings Plan for Represented Members.

The disputed fund options included the:

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  • EDS Common Stock Fund
  • DIRECTV Group Common Stock Fund
  • News Corporation Non-Voting Common Stock Fund
  • Delphi Common Stock Fund
  • Raytheon Common Stock Fund.

The ruling is available here.

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