Compliance April 29, 2009

Judge Dismisses Most of U.S. Sugar ERISA Breach Suit

A federal judge in South Florida has thrown out virtually all of the allegations leveled against U.S. Sugar Corp. of Clewiston, Florida, in a class action lawsuit.
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A South Florida Business Journal report said U.S. District Judge Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida dismissed 12 of 13 counts in the January 2008 fiduciary beach suit filed by participants in an employee stock ownership plan (ESOP).

The suit alleged the company and its top executives violated the Employee Retirement Income Security Act (ERISA) by trying to deprive shareholders of their right to sell shares of company stock on two occasions when U.S. Sugar was pondering buyout offers.
Middlebrooks asserted in his ruling that the plaintiffs did not exhaust all of their administrative remedies and that they could not claim an ERISA fiduciary breach because they held the shares in an ESOP and not directly.

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The only fiduciary breach claim to survive was made by Mary Rafter, a former secretary and administrative assistant for U.S. Sugar and a direct minority shareholder, according to the news account.

Data & Research April 29, 2009

FRC Sees Growth in RIA Channel

Mutual fund assets will grow at a faster rate in the independent, regional, and registered investment adviser (RIA) channels, compared with the wirehouse, bank, and insurance channels, according to a new study from Financial Research Corporation (FRC).
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An FRC news release projects that independent, regional, and RIA firms will contribute 55% of mutual fund net sales by 2013, up from 48% in 2008. FRC predicts mutual funds will garner annual net flows for the next several years of between about $130 billion and $180 billion—the low-to-mid range of where they have been over the last decade.

Findings indicate that mutual fund gross sales and redemptions were at their highest levels in 2007 and 2008, exceeding $2 trillion in each year. The velocity of money movement will remain high for the next several years with the percentage of gross sales and redemptions remaining above historic industry averages, FRC said in the news release.

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“There will be a tremendous amount of mutual fund money in motion,” asserted Maurice Leger, senior vice president, research director at FRC, in the announcement. “This will create a significant opportunity for winning asset managers to achieve outsized growth.”

Other key findings, according to FRC, include:

  • Gradual decline for wirehouses: “One might infer from reading recent headlines that advisers are leaving the wirehouse channel in droves,” FRC said. “While FRC research indicates that this perception is more hype than substance, the wirehouse distribution model is changing, which will reduce the future sales opportunity for mutual funds.”
  • Rise of the RIA channel: Because the RIA channel is expected to experience the greatest growth in terms of number of advisers, FRC forecasts that mutual fund assets through the RIA channel will grow at a faster pace than any other channel over the next five years.
  • Independents face growing pressure: Although FRC believes that competitive pressures will cause the independent channel to experience a slowdown in adviser growth, independent firms are forecasted to be second only to RIAs in terms of mutual fund asset growth.

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