Compliance April 12, 2012

Ameriprise Wins Excessive Fees Case

A federal appellate court reversed its stance in a case alleging Ameriprise charged mutual fund investors excessive fees.
Reported by

In its second review of the case, the 8th U.S. Circuit Court of Appeals upheld a district court finding that the plaintiffs, investors in nine mutual funds managed and distributed by Ameriprise, failed to set forth a genuine issue of material fact that the fees Ameriprise charged “were so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.”   

The appellate court previously determined that the lower court mistakenly rejected a comparison between fees charged to its mutual fund shareholders—to whom Ameriprise owed a fiduciary duty—and non-fiduciary institutional clients (see “AppellateJudges Send Fund Fee Challenge Back to Lower Court.”) In addition, it instructed the district court to determine whether Ameriprise purposefully omitted, disguised or obfuscated information about the fee discrepancy between different types of clients.

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

However, following that decision, the U.S. Supreme Court granted Ameriprise’s petition for certiorari, vacated the 8th Circuit’s opinion, and remanded the case to the appellate court for further consideration in light of the high court’s decision in Jones v. Harris Associates L.P.  In that case, the court found that even if the process of approving the fees was flawed—either because the investment fund board’s process was deficient or because the adviser withheld material information—we must “take a more rigorous look at the outcome” and give less deference to the board’s decision to approve the adviser’s fees (see “HighCourt Sides with Investors in Fee Case.”) 

In the second appeal, the 8th Circuit concluded that, when considered in the light of Jones, the district court’s initial review of the other relevant circumstances and the disputed fees themselves was sufficiently detailed to constitute a “rigorous look at the outcome,” and that there is thus no need to remand for further proceedings. The plaintiffs argue that Ameriprise’s 12b-1 fees violate § 36(b) of the Investment Company Act, but they have failed to show that the fees are outside “the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances.”  

The 8th Circuit’s most recent opinion is here. 

 

Products April 12, 2012

Lincoln Adds Fiduciary Services to LifeSpan Program

Lincoln Financial Group's Retirement Plan Services Business announced enhancements to its LifeSpan customized model asset allocation program. 
Reported by

Lincoln now offers plan sponsors the option to engage with Ibbotson Associates, a registered investment adviser and wholly owned subsidiary of Morningstar, Inc., to provide discretionarily managed custom model portfolios with ERISA 3(38) coverage.

ERISA section 3(38) allows defined contribution plan sponsors to hire a registered investment manager and transfer investment-related liability to the investment manager for the oversight of plan investments.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The LifeSpan program uses an administrative platform that provides consultants and plan sponsors the ability to develop customized asset allocation models for participants, such as target-date and target-risk portfolios, utilizing the investment options from the plan’s existing lineup. The open architecture platform is available for plans in Lincoln’s small-to-large retirement plan program, and to consultants and advisers who wish to act as an ERISA 3(21) investment advice fiduciary or a 3(38) investment manager fiduciary.

 

(Cont...)

The Lincoln LifeSpan program now affords plan sponsors and consultants the option to delegate the fiduciary responsibility associated with developing, monitoring and updating the model portfolios to the investment expertise of Ibbotson Associates. Ibbotson Associates will create a series of model portfolios, including target-date, target-risk and retirement income, based on its patented lifetime asset allocation methodology. Ibbotson will use the plan lineup's investment options, which undergo rigorous analysis, and are carefully selected by plan sponsors and consultants, to implement the diversified model portfolios.

Under this program, plan sponsors or their consultants may choose from a variety of model portfolios designed to accommodate varying participant investment objectives, including:

•  Target-date models;

•  Target-risk models;

•  Retirement income models for investors closer to retirement; and

•  Combination target-risk and date models offering participants a choice of conservative, moderate or aggressive glidepaths based on their years to retirement and risk preference.

 

«