Compliance March 25, 2021

Long-Running BlackRock ERISA Suit Reaches Settlement

The investment firm has agreed to pay $9.65 million to resolve a fiduciary breach lawsuit, first filed in 2017, questioning the fees paid in its own retirement plan.

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The parties in a complex Employee Retirement Income Security Act (ERISA) lawsuit involving BlackRock’s own 401(k) plan have reached a settlement agreement after nearly four years of litigation.  

The filing of the settlement agreement, which has a gross monetary value of $9.65 million, comes about two months after a ruling issued by the U.S. District Court for the Northern District of California, in which the judge rejected various motions filed by the different parties.

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Underlying the lawsuit were allegations that BlackRock engaged in self-dealing within its own retirement plan by using an excessive amount of its own investment products. The complaint suggests plan fiduciaries selected and retained high-cost and poor-performing investment options with “excessive layers of hidden fees that are not included in the fund expense ratios.”

The January ruling came in response to several motions before the court, including the defendants’ motion for summary judgment, the plaintiffs’ cross-motion for partial summary judgment and a motion to strike. The parties also filed numerous administrative motions to file documents under seal in connection with their briefs. In sum, the January ruling denied both motions for summary judgment and the motion to strike, while granting the parties’ administrative motions to file under seal.

The text of the settlement agreement stipulates that the defendants will pay $9.65 million to resolve the claims in the suit—without admitting wrongdoing and with the stipulation that future claims along these lines will be barred. Par for the course in such matters, the agreement calls for the designation of an independent fiduciary to oversee the settlement process and the payment of the settlement funds to the sizable class of plaintiffs.

Also spelled out in the settlement agreement is a 29% cap on the gross settlement amount that can be used to pay plaintiffs’ attorneys fees. This is somewhat lower than the commonly used figure of 33%.

Data & Research March 25, 2021

Hedge Funds and PE Firms Lead in Digital Tech

A Broadridge Asset Management expert explains how financial advisers can follow in their tracks. 

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Hedge funds and private equity (PE) firms are paving the way in next-generation technologies, and experts say financial advisers can learn from their actions. 

A recent Broadridge Financial Solutions study found more than half of financial services firms worldwide plan to increase their spending over the next two years on artificial intelligence (AI), blockchain, cloud and digital tools. The study surveyed 1,000 global C-suite executives and their direct reports.

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As the COVID-19 pandemic has forced the financial services industry to send many employees to remote work, firms have had to heighten their digital capabilities and cybersecurity measures. According to the Broadridge report, firms worldwide reported plans to increase the share of their overall information technology (IT) budgets on next-gen technologies from 11.8% to 15.7%.

“Organizations had to really pivot easily toward cybersecurity and getting their ducks in a row about that, because all of us are now VPN-ing [using a virtual private network] to access our offices or going through cloud technologies over the web and using multi-factor authentication,” says Eric Bernstein, president at Broadridge Asset Management. “The reality of how we’ve adjusted increased our ability and interest in beefing up security.”

The study developed what it calls the “ABCDs of Innovation Maturity Framework,” an outline that categorizes firms as Beginners, Implementers, Advancers or Leaders based on their level of next-gen adoption and the effectiveness of  those applications in driving business performance. All ranks indicated that they’re planning to allocate a larger percentage of their budgets to next-gen technologies within the next two years, with Leaders planning to allocate 19.8% of their budget, Advancers aiming for 17.5%, Implementers planning for 16% and Beginners targeting 9.3%.

According to the firms surveyed, they have widely adopted cloud technologies, more so than AI or blockchain technologies. The firms said they used cloud services in sales and trading (68% and 54%), product development (68%), human resources (HR) (67%), customer management (66%) and IT infrastructure (65%).

The study also found that digital technology was most often used in strategic planning (61%) and marketing (51%), while firms added AI capabilities for security (39%) and portfolio and investment management (35%).

As more financial services firms allocate their budgets to next-gen tech, Bernstein foresees financial advisers following suit. While hedge fund managers and PE firms typically assist customers who are qualified investors or high-net-worth individuals, he notes that streamlined platforms benefits all clients. Now customers and advisers can complete contracts on digital signature solutions such as DocuSign or view their activity together online.

“The benefit the adviser has is that he’s shifting landscapes with the investor, which is a huge advantage,” Bernstein says. “Technology can be his friend.”

He adds that along with improving efficiency, advanced technology can drive revenue while saving costs. For example, advisers don’t need to travel for work or file expenses in a digital environment. “There are savings to be had by going electric and using technology as a facilitator,” Bernstein says.

The Broadridge study found that those who were identified as Leaders had achieved a 4.04% increase in revenue through emerging technologies, while non-Leaders reported a 1.74% margin growth. Cost reductions were relatively consistent among all firms, for an average drop of 2.72%.

“Revenue seemed to go up while costs were going down,” Bernstein concludes. “It just goes to show that our industry can be efficient, and advisory firms can learn from that.”

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