Compliance March 23, 2012

J.P. Morgan Paid $384 Million in Arbitration Loss

J.P. Morgan Chase paid $384 million to American Century Investment Management after losing an arbitration over accusations of breaches related to the bank’s purchase of American Century.
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According to news reports, the American Arbitration Association said J.P. Morgan’s Asset Management unit purposely violated an agreement tied to the purchase of American Century in 2003, by promoting its own funds at the expense of American Century’s.

In the American Arbitration Association’s 72-page decision it stated, “J.P. Morgan breached the contract over and over again. Evidence that compels this finding and conclusion of the one-sided sales and marketing support given to J.P. Morgan Asset Management and its funds is voluminous.”

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According to the arbitration panel, J.P. Morgan agreed to promote the American Century funds when it bought Retirement Plan Services in 2003. However, J.P. Morgan, which held a large minority stake in American Century’s parent company had wanted to buy the entire company. The panel said J.P. Morgan’s personnel thought if American Century funds performed worse, then the company’s value might fall, therefore making it less expensive to purchase.

After the purchase J.P. Morgan pushed in-house funds and encouraged customers to swap out of American Century funds and also awarding bonuses for selling J.P. Morgan products, the panel said.

American Century won the arbitration ruling on August 10, 2011. The award was confirmed by a Missouri state court on December 6, 2011. The award remained confidential until J.P. Morgan agreed to disclosure the information on Wednesday. The payout includes the $373 million arbitration award plus interest.

In an e-mailed statement to The New York Times, J.P. Morgan Spokeswoman Kristen Chambers said, “We disagree strongly with the arbitrators’ decision and award because, among other things, it misinterprets the contract; ignores facts favorable to us, such as the performance of certain American Century funds during the period in dispute; and ignores expert opinions that were favorable to us.”

Products March 22, 2012

Some Merrill DC Advisers to Take 3(21) Status

Beginning in April, a select group of Merrill Lynch financial advisers will offer defined contribution (DC) investment consulting services to manage fiduciary risk.
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This is in response to a growing demand among corporate retirement plan sponsors for these services, which will be introduced through a phased rollout during the remainder of this year and next. Services will be available to institutional clients with a minimum of $25 million in DC plan assets.

Steve Ulian, head of Institutional Retirement Relationship Management for Bank of America Merrill Lynch, told PLANADVISER that the middle market of $25 million up to $250 million, in particular, has requested this service. Ulian said plan sponsors realize they are not in the best position to “go it alone,” and they want help with fiduciary responsibilities.

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Nearly 250 Merrill Lynch advisers hold one of the company’s specialized Defined Contribution or Global Institutional Consulting designations, allowing them to serve plan sponsors’ more complex benefit plan needs. Beginning in April, these benefit plan professionals will have the opportunity to be designated to provide Defined Contribution Investment Consulting services.

Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, estimates that about 30 to 50 advisers will make up the initial group of 3(21) fiduciary advisers, who will help clients with investment menu selection and design.

The company is also offering supplemental employee education services.

“We thought as part of this consulting offer, this type of service is important to complete the picture for advisers as a value they can add,” Crain said.

The advisers will not serve as 3(21) fiduciaries regarding advice on participants’ investment allocations, but they will provide supplemental education to plan sponsors and participants. The company’s Advice Access program, separate from the aforementioned service, provides advice to 401(k) plan participants about the Bank of America Merrill Lynch proprietary recordkeeping platform.

“Our specialized financial advisers work closely with corporate clients to help ensure that their defined contribution plans are more successful and give employees long-term financial security,” Crain said. “This includes giving employers greater assistance and assurance that plans are meeting their objectives and industry standards, and putting employees in a better position to achieve financial wellness at every life stage.”

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