In Practice September 30, 2021

PANC 2021: We (and You) Inspire. Promote. Network.

WIPN leaders and industry partners highlighted important practices when incorporating diversity in an advisory firm.

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A panel at the virtual 2021 PLANADVISER National Conference (PANC) examined the significant racial and gender gaps that are pervasive across the industry, and what it takes to achieve real, widespread progress to fix those gaps.

Leaders and industry partners at the organization formerly known as the Women in Pensions Network (WiPN), which recently rebranded to WIPN—WE Inspire. Promote. Network., discussed recent findings on the state of female and Black, Indigenous and people of color (BIPOC) leaders in the financial services and retirement sector. In a survey of 806 women, WIPN found that while most women reported feeling “good” rather than  “average” regarding their compensation, more than half do not believe what they’re being paid equates to their skills. Additionally, only some believe their career path to be promising, with even fewer women of color thinking this, WIPN found.

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Janine Moore, a senior vice president and retirement practice leader at Hub International, as well as a member of WIPN, opened up about her experience as a Black woman in the financial services industry, and how the sector has evolved in recent years.

Moore, who began her career with Nationwide after serving in the military, shared that her entry to financial services began through a diversity initiative program by Nationwide. She started as a customer services supervisor working on hardship applications and learned about the retirement business through her time there. As Moore expanded into other roles, she saw fewer and fewer women and BIPOC professionals around her. “I found it really challenging to be representing a race in every meeting and interacting,” she remembered.

Research has shown that Moore wasn’t—and isn’t—alone. According to the WIPN study, women of color were more likely to feel as if they must represent their race or ethnicity in a work setting.

Moore went on to work at MassMutual Life Insurance, before she and two others then branched out and founded their own financial services firm, Peak Financial Group, in 2002. Their firm was eventually acquired by Hub in 2019.

While she said the advisory industry has progressed in its approaches to diversity, equity and inclusion (DE&I) since her start in the field, Moore urged advisers to continue eliminating obstacles that women and BIPOC professionals face, especially in the boardroom. “It’s more important to see a variety of people do the job and not just focus on the material,” she said. “We have to break down the barriers and recognize the elephant in the room.”

Jennifer Norr, head of data governance office for Cuna Mutual Group, who is also a member of WIPN, agreed, adding that more workers are drawn to those with similar backgrounds. “People want options to work with those who look like them, whether that’s gender, race or even language. We have to look at diversity as a way to expand.”

The panel also discussed the differences between mentors and sponsors, and why it’s integral for companies and firms to offer both to their employees. Norr described a mentor as someone who trains a young professional, and helps and talks to them. A sponsor, on the other hand, talks about the professional to others and has access to areas the professional has never been to. In other words, a sponsor can be a young worker’s next foot in the door.

Norr encouraged advisory firms to create their own sponsorship programs and advised individual consultants to consider a sponsorship role. Having a sponsor is especially integral to BIPOC professionals, as WIPN studies show these workers are twice as likely to not receive a sponsorship due to lack of exposure. 

Moore recalled connecting with one of her former sponsors through a program at MassMutual, where young workers were partnered with senior members of the company. One of the most senior members of MassMutual ended up taking on a role as her sponsor. The pair worked together during her time there and still maintain a close connection to this day, she said.

Aside from creating a formal program, panel experts highlighted the importance of listening to workers’ values, and what they want to achieve out of their career. WIPN found that more than 60% of women attributed success to salary. Another 40% said being recognized was their main source of achievement. “Creating a culture where people feel appreciated and recognized is vital,” she said.

Moore drew on the disparities that can exist in networking, noting that diversity is not a “pipelining problem, but a networking problem.” Like Moore, there are professionals today who work with insurance companies yet aspire to move into advisory roles. Moore advised these companies to build a bridge for these workers who may not have connections to pull them into the advisory field. Implement sponsorship and mentor programs, offer benefits, and create programs that pay for licenses and training in exchange for years of service, Moore said. All these features may incentivize workers to move into the industry, she added.

When it comes to recruiting, seek out women and BIPOC students or professionals, rather than waiting for these candidates to apply, said David Hinderstein, senior vice president of the retirement services team at OneDigital. For example, he said, participating in job fairs at historically Black colleges and universities (HBCUs) expands the candidate pool while diversifying the workforce.

Most importantly, advisory firms and advisers must want to make a change in the industry. Without the commitment, these practices are likely to fall flat. “You just have to take those steps and be committed to it,” Hinderstein said.

Norr doubled down on Hinderstein’s comment, encouraging advisers to dig deep into their practices and recognize what is lacking. “Get comfortable being uncomfortable—you won’t get it right the first time” she said. “If diversity has taught us anything, it’s that things aren’t one-size-fits-all. When you’re sitting at the table, figure out who’s not there and invite them forward.”

Compliance September 30, 2021

Prudential Defeats Fiduciary Breach Lawsuit

The underlying complaint was dismissed ‘without prejudice,’ meaning the plaintiff can attempt to replead the claims in a way that satisfies the rules of standing.

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The U.S. District Court for the District of New Jersey has ruled against the plaintiff in a proposed class action Employee Retirement Income Security Act (ERISA) lawsuit filed in November 2019 against Prudential.

The complaint named as defendants the Prudential Insurance Co. of America, the Prudential Employee Savings Plan Administrative Committee, the Prudential Employee Savings Plan Investment Oversight Committee, and 20 “John and Jane Does.” At a high level, the suit alleged that the Prudential defendants put the interests of the company ahead of those of the plan “by choosing investment products and pension plan services offered and managed by Prudential subsidiaries and affiliates, which generated substantial revenues for Prudential at great cost to the plan.”

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Among other things, the plaintiff alleged the defendants violated ERISA by “overpopulating the plan with proprietary mutual funds offered by Prudential and its affiliates, failing to monitor the performance of those funds and failing to adequately disclose the amount of recordkeeping fees received by Prudential, resulting in the payment of grossly excessive fees to Prudential and significant losses to the plan and its participants.”

The dismissal order published by the District Court notes that the plaintiff filed an amended version of his complaint in September 2020, upon which the ruling to dismiss is based. As amended, the complaint contained five counts. Count I alleged the defendants breached their fiduciary duties of prudence and loyalty. Counts II and III alleged the defendants engaged in prohibited transactions with a party-in-interest and fiduciaries, while Count IV alleged the Prudential defendants failed to monitor fiduciaries. Finally, Count V pleaded in the alternative that, to the extent any defendants are not deemed a fiduciary or co-fiduciary under ERISA, any such defendants are liable for a knowing breach of trust.

In response, the Prudential defendants filed their now-successful dismissal motion, first moving to dismiss the matter under Federal Rule of Civil Procedure 12(b)(1), arguing that plaintiff lacks standing. The defendants also moved to dismiss the suit under Federal Rule of Civil Procedure 12(b)(6), which permits a defendant to move to dismiss a count for “failure to state a claim upon which relief can be granted.”

Prior to engaging in fairly substantial analysis of both motions, the court emphasizes that, in evaluating the sufficiency of a complaint, a district court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. The court, however, notes it is “not compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions disguised as factual allegations.”

Notably, because the plaintiff’s claims are dismissed on other grounds, the court engages with but does not reach a definitive ruling on the question of the plaintiff’s Article III constitutional standing to bring claims relating to the GoalMaker investment solution. The plaintiff had alleged that the defendants improperly advanced their own interests through GoalMaker.

From here, the ruling states that the plaintiff fails to plead sufficient facts as to each individual defendant’s involvement in the alleged wrongdoing.

“Indeed, beyond listing each individual defendant’s respective position on the various Prudential committees they served on, the plaintiff’s allegations fail to even mention the individual defendants by name, much less state specific facts as to each individual defendant’s alleged wrongdoing,” the ruling states. “Similarly, the plaintiff’s claims broadly attributing misconduct to all ‘defendants’ generally do not satisfy the basic pleading requirement to provide adequate notice to each defendant of the specific claims against him. … Thus, the plaintiff’s claims against the individual defendants … are dismissed.”

The ruling then engages in an analysis of all five counts included in the amended complaint, in each case siding with the defense that dismissal is warranted. For example, in discussing the first count regarding an alleged breach of fiduciary prudence and loyalty, the court notes that the lead plaintiff “for the most part relies on historical price and expense information in support of his allegations.

“Not only is hindsight 20/20, but it also does not meet the plausibility requirement,” the ruling continues. “This general shortcoming is prevalent throughout the amended complaint. … The plaintiff fails to allege sufficient facts or provide the ‘substantial circumstantial evidence’ necessary for the court to reasonably infer that the Prudential defendants breached their duty of prudence. … The plaintiff compares each of the challenged funds to a single corresponding Vanguard fund alleged to have a ‘similar investment style.’ This comparison does not constitute a meaningful benchmark and is insufficient to plausibly allege that the Prudential defendants’ selection and retention of the challenged funds was imprudent. Indeed, if a comparison to a single cheaper fund with ‘similar investment styles’ sufficed to create a reasonable inference of imprudence, ERISA plaintiffs could challenge any fund so long as they could identify one cheaper fund sharing some alleged similarities with the challenged fund.”

The plaintiff’s claims regarding the defendants’ selection of Prudential-affiliated funds and Prudential’s receipt of administrative fees fare no better.

“The amended complaint does not provide any comparisons to the practices of similarly situated fiduciaries or otherwise provide specific allegations supporting an inference of imprudence with regard to the defendants’ selection of Prudential-affiliated funds or Prudential’s administrative fees,” the ruling concludes.

The dismissal was filed without prejudice, and the plaintiff has 30 days to file an amended complaint that cures the deficiencies noted in the ruling. If the plaintiff does not file an amended complaint within that time, the claims dismissed without prejudice will instead be dismissed with prejudice.

The full text of the ruling is available here. 

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