Compliance January 30, 2018

Mutual of Omaha Faces Self-Dealing Suit

The complaint calls out the use of United of Omaha-branded mutual funds and target-date funds, as well as a guaranteed fund managed by United of Omaha.

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A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed against Mutual of Omaha and its 401(k) fiduciaries.

According to the complaint, the plan’s fiduciaries violated their fiduciary duties by selecting numerous investment options not to benefit the plan or its employees, but because they paid fees to Mutual of Omaha or its subsidiaries.

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A request for comment from the firm has not yet been returned.

In particular, the suit says fiduciaries selected United of Omaha-branded investment funds when each of these Omaha-branded funds invested all of its assets in another publicly available investment fund managed by an unrelated third party—causing the plan to pay a fee to United of Omaha in addition to the fee charged by the underlying fund’s manager when the plan could simply have offered the underlying fund and avoided paying any additional fee to United of Omaha. In addition, it says for several of the non-United of Omaha funds offered in the plan, the fiduciaries added on a fee in addition to the fee charged by the fund.

The complaint alleges the plan’s fiduciaries included several United of Omaha-branded Mutual GlidePath target-date funds, which charged plan participants more than non-plan investors paid to invest in those funds. In addition, the fiduciaries constructed several asset-allocation funds (the “Mutual Directions” funds), which automatically allocated participants’ savings to other funds based on risk parameters identified by the participants. United of Omaha added additional fees to the Mutual Directions funds in addition to those charged by the underlying funds.

Finally, the lawsuit claims plan fiduciaries elected to include in the plan a capital preservation option called the Guaranteed Account, which was managed by United of Omaha, despite scores of other better capital preservation funds on the market simply because the Guaranteed Account paid significant fees to United of Omaha.

The plaintiff in the suit seeks damages and equitable relief on behalf of the plan.
Client Service January 30, 2018

Advisers Beware and Be Cautious When Talking Taxes in 2018

During a webinar called to discuss the advisory industry impacts of the Tax Cuts and Jobs Act, experts warned advisers to be ready to decline to offer tax advice during 2018—over and over again.

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Speaking to a mixed audience of retirement plan and wealth management advisers, Joe Elsasser, president of Covisum, shared a strong warning for those listening in regarding the crucial difference between tax advice and financial advice.

As Elsasser laid out, the passage in late 2017 of the Tax Cuts and Jobs Act represented the most significant change to the U.S. personal and business tax codes seen in a generation. As such, it is only natural that advisory clients are looking for specific guidance and general education about how their tax picture will change under the new rates and rules.

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“As an adviser you undoubtedly will be put in the position this year of having to know exactly what tax advice is and exactly what financial advice is,” Elsasser said. “I am sure that those people listening in on this presentation all have a disclosure that says they don’t give tax advice. I am less sure that advisers listening in would be able to clearly and concisely explain to a client the difference between what they offer, financial advice, and what clients will be seeking more and more in 2018, which is tax advice.”  

Most advisers, Elsasser suggested, have never gotten any real or formal training on where the line between financial advice and tax advice stands—or how to explain this to a client. He urged that “advisers need to be front and center about the fact that they cannot offer tax advice, and as such they need to be building relationships with folks who are able to give tax advice, so that they can provide a sense of security for clients.”

While there is widespread agreement that the line between financial advice and tax advice is critically important, there is actually very little sense that the line is perfectly well defined, experts agreed. They also agreed that advisers should not be afraid to tell clients of their limitations in this respect, and that being able to provide for clients a shortlist of trusted partners that do offer tax advice can be a huge value-add. 

“The only thing like a clear direct definition we can probably give here is that advisers in general are not authorized to represent clients in front of the Internal Revenue Service (IRS), which means by definition, the advice they give must not be tax advice,” Elsasser said. “So unlike a CPA, for example, an adviser could not represent their client during an audit, or even as they prepare their normal return, and so their financial advice must not venture into that sort of territory.”

Of course, this does not at all mean advisers should ignore the impact that anticipated taxes or potential changes in various tax rates will have on client investing decisions moving forward. In fact, as Elsasser noted, routine financial planning work generally must consider a broad set of tax issues and how these relate to the advice that is being give.

“There are tax-related competencies that are at the heart of what advisers do,” Elsasser said. “But that does not mean that we can provide advice that will serve as the basis for clients’ specific tax-related decisions.” 

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