Deals and People February 22, 2019

Retirement Industry People Moves

AXA Equitable appoints president; Wilshire announces series of promotions and hires; DWS Group adds investment solutions head; and more. 

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Art by Subin Yang
Art by Subin Yang

Art by Subin Yang

TEA Names New President and CEO

The ESOP Association (TEA) announced that James Bonham will assume the role of president and chief executive officer (CEO) on March 1. 

Bonham will also serve as president of the Employee Ownership Foundation, an affiliated non-profit with a mission to encourage, educate, and catalyze new research in support of employee ownership nationwide.

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“Jim has a long and successful track record of high-level, transformational leadership advising some of the most widely recognized companies and leaders in the nation.  When combined with his deep familiarity with employee ownership rooted in his family’s history, he was the perfect choice to lead TEA into the future,” says David Fitz-Gerald, chair of the TEA Board. “Jim is well-versed in the legislative and regulatory priorities of ESOPs and our members and we’re thrilled to welcome him aboard.”

Bonham brings experience in executive leadership, including strategic planning, public policy and advocacy, plus government and community relations. Previously, he served nearly eight years as the chairman of Public Policy and Government Relations at Manatt, Phelps, & Phillips, LLP, a law and business consulting firm where he chaired the firm’s bipartisan public policy and advocacy division in Washington. Bonham has also served in senior staff positions in both the U.S. House of Representatives and the Senate and is a former executive director of the Democratic Congressional Campaign Committee (DCCC).

Bonham will be replacing Michael Keeling, who is retiring after serving as president of TEA since 1991. 

AXA Equitable Life Appoints President 

AXA Equitable Life has appointed Nick Lane as president, with responsibilities for the company’s Retirement, Wealth Management and Protection Solutions businesses as well as its Marketing and Digital functions.

Lane reports to AXA Equitable Holdings, Inc. president and chief executive officer, Mark Pearson, and joins the firm’s Management Committee. Most recently, he served as CEO and president of AXA Japan, where he was responsible for a $5.4 billion annual revenue business and led a team of 9,000 employees and distributors.

“I am pleased to have Nick join our management team and bring his unmatched energy and passion to AXA Equitable Life,” says Pearson. “His extensive background and deep industry experience will strengthen the team and accelerate our ability to deliver differentiated value for our customers, partners and shareholders.”

Lane first joined the company in 2005 and held a variety of leadership roles. Among his key accomplishments are enhancing the business through product diversification and expanding the firm’s distribution channels through alliances with property and casualty carriers. He also launched fee-based versions of the company’s flagship variable annuity products to meet evolving financial adviser and customer needs.

“It is an honor to rejoin my talented colleagues at AXA Equitable Life at an exciting time for the company and the customers we have the privilege to serve,” says Lane. “We have a tremendous opportunity to help even more Americans protect their families and prepare for a dignified retirement by continuing to deliver innovative products and trusted financial advice.”

Lane also led global strategy for AXA Group, oversaw its asset management business and served on the boards of AllianceBernstein, AXA Investment Managers, AXA Private Equity and AXA Real Estate Management.

Prior to joining the company, Lane was a leader in the sales and marketing practice of the global management consulting firm McKinsey & Co. He received an MBA from Harvard Business School and a bachelor’s degree from Princeton University. Lane also served as a Captain in the U.S. Marine Corps.

Wilshire Announces Series of Promotions and Hires

Wilshire Associates (Wilshire) have promoted several individuals to managing directors and senior vice presidents.

Appointments and promotions to managing directors are as follows: Benkai Bouey, Legal and Compliance; Bill Bracamontes, Private Markets; Stephen DiGirolamo, Consulting; Shawn Quinn, Private Markets; and Bjorn Waltmans, Private Markets.

Adding to the list of senior vice presidents are: Lisa Herbert, Analytics; Jeff So, Analytics; Jason Samansky, Consulting; Chris Tessman, Consulting; Kai Chen, Funds Management; Chad Wubbena, Funds Management; Mark Karchov, Private Markets; Mike Lavalle, Legal and Compliance; Sharon Lee, Legal and Compliance; Reza Pishva, Legal and Compliance; Doug Lee, Information Technology; and Tina Takeuchi, Human Resources.

“I am delighted to congratulate this talented group of colleagues whose exceptional leadership has been integral to the ongoing growth and success of the firm,” says John Hindman, president of Wilshire Associates. “I look forward to working closely with each of them as we continue to innovate and collaborate across business divisions to deliver meaningful solutions to our clients.”

DWS Group Adds Investment Solutions Head 

DWS Group appointed Stefan James as managing director and Americas’ head of Corporate Coverage reporting to J.J. Wilczewski, head of Institutional Client Group for the Americas. Based in Chicago, James, along with his team, will lead efforts to deliver short and long-term investment solutions to corporate clients in the Americas region.

“The corporate segment has long been an area of strength and innovation for DWS and we are confident that with Stefan’s leadership we can further deepen our corporate client relationships and deliver on the complex needs of these institutions,” says Wilczewski. “As we continue to see growth in this segment, Stefan’s strong personal connections will undoubtedly help us to improve as a business.”

James joins DWS after spending five years at Deutsche Bank, where he led the firm’s corporate banking business in the Americas. Prior to this, James held leadership positions in corporate banking at J.P. Morgan and Bank of America Merrill Lynch in the U.S. and Asia.

Compliance February 22, 2019

Fidelity Charged With ‘Secret’ Payment Scheme in Violation of ERISA

A lawsuit contends that kickback payments Fidelity requires from investment funds bear no relationship to the cost or value of services provided and are a replacement for declining amounts of revenue sharing payments received by Fidelity as a result of the increasing use of passive mutual funds, institutional and R6 share classes of mutual funds and collective trusts.

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A participant in the T-Mobile USA, Inc. 401(k) Retirement Savings Plan and Trust has sued FMR (Fidelity) and several of its affiliates claiming the firm engaged in prohibited transactions by charging a “secret” fee for mutual funds and engaging in self-dealing.

In a statement to PLANSPONSOR, Fidelity says, “Fidelity emphatically denies the allegations in this complaint. Fidelity fully complies with all disclosure requirements in connection with the fees that it charges.”

The proposed class action explains that Fidelity acts as a recordkeeper, service provider, a party-in-interest and a fiduciary for thousands of defined contribution (DC) retirement plans in the U.S. It offers plans the opportunity to invest in third-party mutual funds and similar investment vehicles through its “Funds Network”, which Fidelity launched in 1989 and, according to the complaint, describes as “one of the industry’s leading fund supermarkets.” 

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According to the complaint, beginning in or about 2017, Fidelity began requiring various mutual funds, affiliates of mutual funds, mutual fund advisers, sub-advisers, investment funds, including collective trusts, and other investment advisers, instruments or vehicles that are offered to the plans through Fidelity’s Funds Network, to make what the lawsuit calls “secret” payments or “kickbacks” “to Fidelity for its own benefit in the guise of “infrastructure” payments or so-called relationship-level fees in violation of the prohibited transaction rules of the Employee Retirement Income Security Act (ERISA).

The plaintiff alleges that the kickback payments are part of a pay-to-play scheme in which Fidelity receives these payments from mutual funds in the event that otherwise disclosed revenue-sharing payments fall below a certain level and Fidelity requires payment of these kickbacks in return for providing the mutual funds with access to its retirement plan customers.

“Although Fidelity attempts to categorize these secret kickback payments as flat-dollar payments, the payments are, in fact, calculated based upon the assets the mutual funds maintain under management [multiplied by designated basis point (bp) amounts], including the plans’ assets invested in the mutual funds, and are offset by the amount, if any, of revenue sharing payments generated by the assets for which Fidelity provides recordkeeping and related services,” the lawsuit says. It alleges that these payments clearly constitute indirect compensation that Fidelity is required to disclose to the plans under ERISA Section 408(b)(2), but Fidelity does not disclose them. According to the complaint, the payments amount to at least tens of millions of dollars per annum, and likely in the hundreds of millions of dollars per annum, to the plans. It also accuses Fidelity of forbidding the mutual funds from disclosing the amount of these payments, despite their legal obligation to do so.

The lawsuit says the payments have the effect of increasing the expense ratios and/or other expenses of the mutual funds, which are deducted directly from the assets of the plans and their participants. It adds that Fidelity is a fiduciary under ERISA by virtue of its discretion and exercise of discretion in negotiating/establishing its own compensation by and through its setting of the amount and receipt of the payments. 

“While the kickbacks are internally described by Fidelity as ‘infrastructure payments’ and reimbursement for expenses incurred in providing services for, to, or on behalf of the mutual funds, and deceptively characterized as such to retirement plans and their participants … the amounts of these kickbacks bear absolutely no relationship to the cost or value of any such services and, instead, plainly are a replacement for declining amounts of revenue sharing payments received by Fidelity as a result of the increasing use of passive mutual funds, institutional and R6 share classes of mutual funds and collective trusts, which pay little or nothing in the way of [revenue sharing],” the complaint says. The court document explains that Fidelity also reserves the right to increase the amount of the kickbacks and to impose them upon mutual funds at its discretion. “Fidelity occupies a conflicted position whereby it effectively operates a system in which it is motivated to increase the amount of such payments, while improperly incentivizing the mutual funds to provide [revenue sharing payments] to Fidelity and/or to conceal the true nature of fees associated with these funds, and requiring the plans and/or participants who invest in mutual funds and similar investments to unwittingly incur and pay undisclosed fees for the services provided to them.”

The plaintiff argues that the services provided by Fidelity that may incidentally benefit mutual funds are actually services that Fidelity has historically provided to its retirement plan customers as a necessary part of its business in return for fees directly collected by it from such customers, and these fees generally do not change as a result of Fidelity’s receipt of the kickbacks from the mutual funds and are not reduced in a manner that corresponds with the amount of the kickback payments received.

“Fidelity’s receipt of the kickback payments at issue violates ERISA’s prohibited transaction and fiduciary duty rules and should not be countenanced since the receipt of such payments places Fidelity in a conflicted position in which the interests of its retirement plan customers can be and are sacrificed in the interest of Fidelity earning greater profits through the receipt of such payments,” the lawsuit contends.

It also charges Fidelity with engaging in acts of self-dealing with respect to the retirement assets of the plans, in violation of ERISA’s prohibited transaction and fiduciary duty provisions.

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