PLANADVISER - November/December 2017 - 37

plans. " It's a good way to get lots in
recoveries, " he said.
But, Clark said, for smaller plans,
the plaintiffs' bar will realize it has
" caught the bumper " and will fail to
get a payout that compensates for
the cost to litigate. He believes, going
forward, small plans will not see
much litigation.
From cases that have been filed and
decided, there are lessons to be learned.
According to Clark, decisions in selfdealing
cases are turning into process
claims, which say, " You should have
done something. " However, this does
not mean a plan sponsor or defendants
have violated the Employee Retirement
Income Security Act (ERISA).
Kaleda noted that Fidelity was
dismissed from the Verizon excessive
fee case. " Service providers are targets
of suits because they have the deepest
pockets. But they are usually not fiduciaries
and not responsible for alleged
claims, " he said, adding " Recordkeepers
usually make sure they are not
fiduciaries, but the plaintiffs' bar [has]
tried to make cases showing they are. "
For example, Kaleda said, in the
Delta case citing Fidelity and Financial
Engines, where the plan sponsor
offered a managed account program
Fidelity sponsors, the court said
Fidelity did not act as a fiduciary when
it set its compensation structure for a
chosen plan sponsor service. Kaleda
explained that providers can get into
trouble making recommendations that
Audience Poll
How has the quality of your competition shifted in terms
of the robustness of offerings, willingness to be
a fiduciary and fees charged?
l The competition is stronger on service quality
and fees 53.5%
l The competition is stronger on service quality 16.3%
l The competition is weaker on both quality
and pricing 14%
l The competition has not noticeably shifted 9.3%
l The competition is stronger on fees 7.0%
create compensation for themselves,
but setting a fee structure for services
that plan sponsors agree on is not a
violation of a fiduciary function.
Kaleda
said decisions in other
lawsuits against retirement plans
have shown that plan sponsors and
advisers just need to show there
were fiduciary processes in place for
selecting and monitoring investments
and providers.
Guide to the Markets
David Kelly, Ph.D., CFA, and managing
director, chief global market strategist
and head of J.P. Morgan Funds'
global market insights strategy team,
likened the U.S. economy to a " healthy
tortoise " that will produce 2% annual
gross domestic product (GDP) growth
but, over the near term, will be unable
to reach 4% or even 3%.
" [After] a 37-year bull run in fixed
income, yields are now very low, " Kelly
said, forecasting that the slow GDP
growth will
inevitably lead to a 2%
return in fixed income over the next
five years. Despite projections that
stock earnings would be strong in
the third quarter of this year, investors
" will be lucky to earn 5% in equities
in 2018. Valuations-a Shiller's
30.1 price/earnings [P/E] ratio-are
looking high, in the ninth year of a bull
market. This is the third-longest stock
market expansion since the Civil War, "
he said, adding that, when the market
inevitably contracts, " this will create a
problem for long-term investors. "
However, drilling down on international
equity earnings and valuations,
Kelly said, " You need to look
overseas. Emerging markets and
Europe both have room to grow and
will do better over the next five years,
potentially delivering 10% returns a
year. I don't think the world economy
has looked this good in a long, long
time, so global central banks don't
need to keep helping it. In fact, they
will begin to subtract assets. The U.S.
Federal Reserve is now finally trying
to normalize its balance sheet. The
Fed's securities are maturing, which
will cause it to reduce its balance sheet
David Kelly, Ph.D.,
managing director, chief
global market strategist,
head of the global market
insights strategy team,
J.P. Morgan Funds
Management.
planadviser.com november-december 2017 | 37
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PLANADVISER - November/December 2017

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