Compliance April 20, 2020

Parties Assent to $12.5M Settlement of Putnam ERISA Lawsuit

Under the terms of the proposed settlement, Putnam will pay $12.5 million into a common fund for the benefit of settlement class.

Reported by

The parties in the Employee Retirement Income Security Act (ERISA) lawsuit known as Brotherston v. Putnam have reached a proposed settlement.

The case has been playing out in the U.S. District Court for the District of Massachusetts.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

According to the text of the settlement agreement, the settlement resolves the plaintiffs’ class action claims against a number of Putnam defendants, including Putnam Investments LLC, Putnam Investment Management LLC, Putnam Investor Services Inc., the Putnam benefits investment committee and the Putnam benefits oversight committee.

Under the terms of the proposed settlement, Putnam will pay a gross settlement of $12.5 million into a common fund for the benefit of settlement class, which numbers at approximately 6,000.

“This is a significant monetary recovery for the class and falls well within the range of court-approved settlements in similar ERISA cases,” the agreement posits. “Moreover, the settlement also provides for prospective relief.”

Among other things, the agreement stipulates that the defendants will maintain an investment policy statement for the plan, and the Putnam benefits investment committee, dubbed the “PBIC,” “will now independently review the at-issue Putnam funds in the plan.”

“Defendants will maintain a charter for the PBIC that outlines the duties and fiduciary responsibilities of the PBIC and establishes its general quarterly meeting schedule,” the agreement stipulates. “Defendants will maintain an investment policy statement for the plan; defendants will maintain a suite of low-cost third-party passive collective investment trust (CIT) options in the plan; PBIC will meet no less than quarterly, and such meetings shall include two meetings a year to review Putnam options in the plan, with Putnam senior investment representation attending to review the funds; one meeting a year to review the third-party passive CIT options in the plan with representatives of the third party CIT provider(s); one meeting a year to review the plan’s qualified default investment alternatives [QDIAs]; and one meeting a year to review PanAgora options in the Plan with PanAgora representatives; and defendants will arrange annual training on ERISA fiduciary duties for plan fiduciaries.”

According to the agreement, these changes are intended to address the allegedly defective procedures that plaintiffs identified regarding defendants’ process for managing the plan’s investment lineup and remedy specific conduct cited by the court in connection with the partial trial of this matter.

The settlement agreement further points out that the general structure of the settlement is similar to one approved by the same court in another ERISA case involving alleged self-dealing within proprietary funds, known as Price v. Eaton Vance Corp.

Like many ERISA lawsuits, Brotherston v. Putnam has a complex and lengthy procedural history. Underlying the entire care are the original allegations that Putnam engaged in self-dealing to promote the firm’s mutual fund business and maximize profits at the expense of the plan and its participants. The defendants were also accused of allowing excessive fees as a result of a lack of monitoring and replacing investments.

Back in 2017, the district court found that Putnam followed a prudent process for selecting and monitoring funds in its retirement plan and that participants’ comparison of Putnam mutual funds’ average fees to Vanguard passively managed index funds’ average fees was flawed. However, the 1st U.S. Circuit Court of Appeals vacated the District Court’s judgment in part and remanded the case for further proceedings, leading to the current settlement agreement.

Client Service April 20, 2020

During Crisis, Investors Expect Much from Advisers

Investors are closely watching the way their advisers and investment managers are navigating the novel coronavirus pandemic. 

Reported by

According to a recently published Spectrem Group report, 74% of wealthy investors—those with a net worth between $15 million and $25 million—predict the American economy is heading toward a recession.

Their outlook matches those held by many professional money managers. According to a second quarter global market outlook study published by Russell Investments, the market stressors caused by the coronavirus pandemic make a recession in 2020 likely.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The Spectrem Group report warns that investors’ stances on the current market can easily translate to their views on their current financial advisers. While just over half of investors believe their adviser has been proactive in handling their investments during the crisis, 10% say they would be better served with a different primary adviser.

“Investors have now had two months to assess the performance of their financial adviser in response to this crisis, and while there is a general satisfaction with how advisers have addressed their needs, many investors are rethinking their professional relationship with their adviser,” says George Walper, president of Spectrem Group.

Walper encourages advisers to continue to focus on helping investors cope with investment losses without responding emotionally. Despite the national social isolation orders, he says, there has been an uptick of industry professionals communicating with their clients and investors via telephone and online formats.

“The level of communication we’re seeing has been better,” he tells PLANADVISER. “Recordkeepers are also reaching out to sponsors and participants, utilizing FaceTime and Skype.”

Setting Expectations

Dave Goodsell, executive director at the Natixis Center for Investor Insight, notes that in his company’s research, investors tend to expect to receive higher returns than what advisers predict. “We asked investors what their return expectations are, and the average was 10.9% above inflation,” Goodsell explains.

“Financial advisers say 6%,” he adds. “The difference in expectations is really contributing to this shock.”

It’s important for advisers to interpret and rationalize for clients what is going on in the market, Goodsell says. And of course, instead of focusing on the short term, ensure participants understand how a long-term outlook and strategy can lead to higher returns.

According to the Spectrem Group, 15% of high-net-worth investors have sold equities in recent weeks, and 21% have purchased equities in order to take advantage of lower prices in the stock market. Goodsell says advisers are focusing on long-term results over short-term performance, but investors are considering the opposite.  

As investors are growing concerned over how finances will affect their day-to-day lives—including their health care costs and taxes—their connection between risk and reward can warp. Financial advisers can thus really become an investor’s point-person—a trusted source to turn to in navigating the market.

“An adviser might be the only person participants can talk to in terms of finances,” Walper says. “They have to communicate with their clients on how they can help them understand that their financial situation has changed.”

«