Compliance June 15, 2020

Settlement Agreement Reached in Neuberger Berman 401(k) Plan Lawsuit

The lawsuit alleged the firm violated the Employee Retirement Income Security Act (ERISA) by maintaining the Neuberger Berman Value Equity Fund as an investment option in its plan.

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The Neuberger Berman Group 401(k) plan investment committee will pay $17million to settle a lawsuit alleging it violated the Employee Retirement Income Security Act (ERISA) by maintaining the Neuberger Berman Value Equity Fund (VEF) as an investment option in its plan.

In September 2018, U.S. District Judge Laura Taylor Swain of the U.S. District Court for the Southern District of New York left only the plan’s investment committee as a defendant and only approved the prohibited transaction claim, dismissing all other defendants from the suit and dismissing the breach of fiduciary duty claims.

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In response to that decision, the plaintiffs moved for leave to amend the complaint to provide further detailed factual allegations against which to compare the VEF performance and fees as circumstantial support for plaintiffs’ claims of breach of fiduciary duty, and to add a demand for a jury trial. In May 2019, Swain granted the plaintiffs leave to amend the complaint.

The settlement agreement notes that, in December, the VEF was removed as a plan investment option. For participants who did not elect to transfer their balances in the VEF to another investment option, their balances were mapped to an age-based target-date fund (TDF).

The parties notified the court on March 23 that they had reached an agreement to settle. The settlement agreement will have to be approved by the court.

According to the settlement agreement, “Defendant continues to deny all allegations of wrongdoing and denies all liability for the allegations and claims made in the action. Defendant maintains that it is without fault or liability and is settling the action solely to avoid litigation costs.”

Deals & People June 15, 2020

Mergers and Acquisitions Hit Hard by COVID-19

Between March and May, there were only 10 RIA transactions and two IBD deals, according to Fidelity.

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The coronavirus has put a tremendous damper on merger and acquisitions (M&A) activity among registered investment advisers (RIAs) and independent broker/dealers (IBDs), according to Fidelity Investments’ “Wealth Management M&A Transactions, May 2020” report. Between March and May, there were only 10 RIA transactions totaling $4.1 billion and two IBD transactions totaling $3.5 billion. This was the lowest M&A activity in any three-month period since Fidelity began tracking such transactions in 2016.

Year to date, there have been 30 RIA deals representing $32.8 billion. By comparison, the same period last year had 55 RIA deals representing $59.7 billion, which is a 45% decrease in both transactions and assets.

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Scott Slater, M&A specialist and a vice president of practice management and consulting for Fidelity Custody & Clearing Solutions, tells PLANADVISER, “The data on announced deals is quite stark, as the coronavirus pandemic has continued to slow M&A activity through May. Nonetheless, buyers report that pipelines are active and full, with an expectation of a return to a robust M&A market as the economy recovers.”

Slater said he was not surprised that M&As took a downturn—but he was surprised at the magnitude of the downturn.

Slater says he does expect M&As to pick up later this year, particularly in the fourth quarter, but that the deals will depend on a number of factors.

“No. 1, sellers and buyers are reassessing what the new dynamic will look like. Sellers are coming to terms with multiples that could be somewhat less,” Slater says. “No. 2, from a quantitative standpoint, it is hard to do due diligence between parties and assess culture over a phone call. It will be very important that people connect and get together in person for deals to be reached. People still want to know what it is like in a particular office before they can consummate a deal.”

Slater also notes that private equity and money from minority-owned firms are going into wealth management M&A. “Because it has been a seller’s market for so long, that puts pressure on buyers to come up with attractive and creative models. That has led to an evolution of creative business models, including minority investors providing expertise in M&A, to participate more effectively. This has really accelerated in the past six months.”

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