Data and Research September 29, 2016

More People Seek Financial Advice Through Employers

Although nearly half (48%) of those surveyed who have worked with a financial adviser chose one outside of their workplace, that trend is shifting, TIAA finds.
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Seventy-one percent of Americans are interested in receiving financial advice, according to the 2016 TIAA Advice Matters Survey.

Forty-five percent of Gen Y have received advice, but 82% are interested. Thirty percent of those earning less than $50,000 a year have received advice, but 61% are interested in doing so.

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Seventy-five percent of people said they would consider taking a job at a company that offers financial advice at no cost; that figure jumps to 87% of Gen Y.

Although nearly half (48%) of those who have worked with a financial adviser chose one outside of their workplace, that trend is shifting. Sixty-four percent of Baby Boomers who have received advice worked with a non-employer-affiliated adviser, but that drops to just 27% of Gen Y respondents.

“Gen Y really wants financial advice, and companies are doing their best to attract top young talent,” says Kathie Andrade, CEO of TIAA’s Retail Financial Services business. “So, it makes sense for employers to add advice to their benefits. Pairing a well-designed retirement plan with strong education and support can go a long way in helping companies attract well-qualified employees and set them on the path to success.”

When it comes to financial advice, Americans believe the earlier the better. Fifty-nine percent say that a first meeting with an adviser should take place before the age of 35—and that figure jumps to 80% for Gen Y respondents. Among those who have received advice, 77% wish they had met with an adviser sooner.

For those who have not worked with an adviser, 35% think they don’t have enough money to invest. Forty-nine percent think they need more than $50,000 to qualify to work with an adviser.

“You don’t need a minimum amount of money to receive professional financial advice,” says Andrade. “An array of effective online tools and resources gives everyone access to personal financial support. And finding a financial adviser early in your adult years, perhaps through your parents or employer, can help put you on a path for financial success.”

NEXT: What people want from an adviser

Eighty-five percent say they would find advice tailored to their age group helpful, and 73% of women say the same about advice tailored for—and delivered by—women. However, only 40% of women have received advice, compared to 56% of men.

Milestone events may prompt Americans to seek professional financial advice, such as retirement (41%), receiving an inheritance (32%), preparing to purchase or sell a home (30%) and planning for a child or grandchild’s college education (20%).

Twenty-nine percent said they would consider working with an adviser if they had a clear understanding of how they would be charged for advice. Twenty-four percent would welcome a recommendation from friends or family, 22% would like to receive assurance that the adviser is qualified to help them, and 20% would appreciate the adviser pledge that they will not try to sell them any particular product or investment.

Investment advice and saving for retirement outside of a workplace retirement plan are the top two topics that Americans would like to discuss with a financial adviser, but topics vary by income levels. Only 30% of people with an annual income below $50,000 have worked with an adviser, but this is true for 49% of people earning more than $100,000 a year. However, those in the lower income group are more interested in creating a budget (34% versus 21%). Twenty-nine percent of people in all income levels are interested in creating monthly income that they cannot outlive.

KRC Research conducted the online survey for TIAA among 1,000 adults in August.
Compliance September 29, 2016

Investment Manager on the Hook for Poor Retirement Plan Diversification

A court ordered the investment manager to pay losses to the plan as well as pay back investment management fees.

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The 2nd U.S. Circuit Court of Appeals has affirmed a lower court’s ruling in Severstal Wheeling Retirement Committee v WPN Corporation, a complicated but informative example of retirement plan litigation that considered the extent of a plan fiduciary’s duty to diversify investments, as well as the allocation of liability among plan managers.

By way of background, WPN Corporation and its lead executive Ronald LaBow are named fiduciaries of two defined contribution plans sponsored for the employees of a company called Severstal Wheeling Inc. The plaintiffs in the initial suit include Severstal Wheeling Inc. Retirement Committee and other named fiduciaries of the plans, who sued WPN and LaBow on behalf of the plans for breaches of their fiduciary duties.

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Until late 2008, according to case documents, the plans were funded and maintained through a trust sponsored by the WHX Corporation. The combined trust pooled the plans’ assets with assets from other employee benefit plans sponsored by WHX. After Severstal Wheeling, Inc. separated from WHX, a portion of the assets was transferred from the Combined Trust to a separate trust holding the plans’ assets. Before and after the transfer, the plans were managed by WPN, whose sole employee was LaBow.

The main charge of wrongdoing was that WPN and LaBow did not put into action demands by the investment committee to diversify and otherwise properly manage participant assets. According to the district court opinion, the committee testified that LaBow’s account of whether and how the plans could be diversified was “an ever evolving story of what could or could not be done” that “seemed to change just about during every conversation.” 

Crucially, the judge also found that governing documents did not give LaBow and WPN the option of abdicating responsibility to the retirement plans’ committee. LaBow argued that he met with several impediments to diversifying the plans’ assets, including that not all assets the committee wanted were available, that he was not given an investment policy to guide him and that the custodian of the trust did not recognize his authority to direct investments. The bench trial judge was persuaded by testimony of several experts to reject these arguments, case documents show.

The court ordered the investment manager to pay the plans $9,710,438, including disgorgement of the $110,438 paid in investment management fees during the period, plus $5,305,889.74 as prejudgment interest. 

NEXT: Details from the appellate decision 

The appellate court’s summary decision explains that, in late 2008, LaBow directed the treasurer of WHX to transfer all of the assets maintained in an account managed by Neuberger Berman, LLC, from the combined trust to the newly created Severstal trust. On November 3, 2008, the entire contents of the Neuberger account, an undiversified portfolio comprised of mostly energy stocks, were transferred to the Severstal Trust.

“LaBow and WPN argue that this transfer did not violate ERISA,” the appellate decision states. “But the district court’s finding of liability was not based only on the transfer itself; rather, the district court held that LaBow breached his fiduciary duties by selecting the Neuberger assets—an undiversified portfolio of energy stocks—as the only assets to be transferred to the Severstal Trust, and did so without informing the committee before or after the transfer what investments had been transferred, with the knowledge that Neuberger Berman was not going to manage the assets, and without taking any steps to ensure the ongoing prudent management of the assets.”

The appellate court explains LaBow and WPN’s challenge to these determinations largely turns on the district court’s assessment of the evidence and its credibility determinations as to expert testimony.

However, it is “within the province of the district court as the trier of fact to decide whose testimony should be credited,” the summary order contends, “and we are not allowed to second-guess the district court’s credibility assessments … Because LaBow and WPN have not asserted any arguments that suggest, let alone confirm, that the district court’s factual findings are clearly erroneous, we have no basis to set aside the district court’s ruling.”

Appellants additionally argued that the district court erred in finding that they had been granted management control and authority—and thus were fiduciaries under Section 3(21)(A)(iii) of ERISA—because LaBow could not have exercised such authority had he attempted to do so.

“Even assuming that the inability to actually exercise control over assets could present a defense to a finding that a person is a fiduciary under Section 3(21)(A)(iii)—which requires only the grant of discretionary authority, not its actual exercise, see Bouboulis v. Transp. Workers Union of Am., 442 F.3d 55, 63 (2d Cir. 2006)—the district court made explicit factual findings rejecting that argument at trial. None of Appellants’ arguments indicate that those findings are clearly erroneous.”

The full appellate decision is available for download here. 

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