The Rosenbaum Law Firm P.C. Blog

My latest jdsupra.com article can be found here.

I’ve been hired by a couple of broker-dealers in how to develop a plan to comply with the new fiduciary rule. Unlike some of my competitors, all of my fees are based on a flat fee (cheap plug here).

I’m often asked how a broker-dealer can meet the standard of the fiduciary rule when it gets implemented.  Don’t expect me to give the store away and provide all the trade secrets in a secret blog, but I believe that the new fiduciary rule is going to radically change a broker-dealer’s business when it comes to being a plan fiduciary.

Saying that you’re just going to slap the fiduciary definition on yourself isn’t enough and getting a best interest contract signed isn’t enough because there are issues dealing with fees and individual brokers that have to be worked on. When it comes to trails from mutual funds being paid to brokers, I don’t think many broker-dealers can get a handle on what fees are actually being paid, it’s almost like peeling an onion when you’re dealing with an alphabet soup of share classes and different forms of remuneration. Any broker-dealer is going to need to identify what fees they are getting if they have any hope of meeting that best interest exemption.

Another issue is what I call “the dumbest person in the room”. I worked in many different types of businesses and I’m always concerned about the dumbest person in the room that could entail issues that could create potential liability. When it comes to a broker-dealer, there are many brokers who knew the ramifications of working with retirement plans and there are some who just don’t have the knowledge and for one reason or another, won’t get that knowledge. I believe that getting ready for the fiduciary rule is putting a system f checks and balances in place to avoid the broker-dealer getting sued because the broker who is “the dumbest person in the room” is doing something they aren’t supposed to do.

These are just two ideas that broker-dealers need to think about before deciding what to do. For further questions on how to meet the new rule, please give me a call.

I always loved the movie Donnie Brasco, it’s a great story about the non-glamarous side of organized crime. As part of a crew captained by Sonny Black, Lefty Ruggiero played by Al Pacino is hammering away to get the change from a Brooklyn parking meter so there is enough money to kick up to the higher ups of the Bonnano family.

I assume that ERISA litigators aren’t breaking up parking meters to kick up money to the partners of their law firm, but I always find that their expanding ideas of litigating against plan fiduciaries is something similar in the sense that they have to be creative in litigation once there is going to be “peak 401(k) fee litigation”.

What’s “peak 401(k) fee litigation”? It’s my theory that eventually the big money 401(k) high fee cases will eventually end. Large corporations with 401(k) plans will eventually fix their plans when it comes to paying high fees and ERISA litigators are going to try to find new ways to target 401(k) plan sponsors because they have to eat too.

This maybe done by targeting smaller to medium sized 401(k) plans (less money involved than bigger plans which means less rewards for ERISA litigators), further lawsuits against plan providers to try to hook them up being a fiduciary (which doesn’t have a very good track record), suing 401(k) plans for offering money market funds instead of stable value (lawsuit just thrown out against Chevron for that), or perhaps other new ideas such as targeting any plan who ever used revenue sharing or failed to provide enough investment education to plan participants (trying to recover for losses in a 404(c) participant directed plan).

Regardless of the theory, you are going to see interesting cases brought forth against plan sponsors besides just high fees and it should be interesting to see how it all pans out.

My latest newsletter geared towards retirement plan providers can be found here.

There has been an influx of participant lawsuits against private universities for the 401(k) and/or 403(b) plans they sponsor for their employees. That’s like shooting fish in a barrel.

Private universities are being sued because the claims are that the 401(k) plans and 403(b) plans that they sponsor are just way too expensive. Let’s be honest, private universities and colleges aren’t exactly experts when it comes to reasonable costs. I’m still paying off my student loans 18 years after I graduated school.

When you have little concern about costs in your “business”, why would you have concern about the costs of your retirement plan? I can vouch through 18 years of experience that the worst run retirement plans are usually run by businesses that are way too busy in running their own business and aren’t exactly concerned about the costs that they pass on to their clients. Just saying…

My latest newsletter can be found here.

My latest article for JDSupra.com can be found here.

The Peter Principle is a management theory concept in which the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. So the theory goes that managers will rise to the level of their incompetence so they only get promoted until the point where they can no longer work effectively.

I have developed my own management theory: I call it the Norma Principle. It’s the theory that many small to medium sized companies inexplicably favor an employee or group of employees that are actually incompetent.

There are many reasons why that employee or group of employees is favored: it could be nepotism, a warped view of loyalty, or becoming friends with the employees.

A perfect example of the Norma Principle at work was at the very first job I ever got. I was a lowly ERISA attorney working for a law firm associated with a third party administration (TPA) firm. That TPA had many excellent administrators, but for some reason, my boss loved this guy Orville who worked for this TPA. Orville was a nice guy, but a terrible employee. He was a terrible office worker. Then they made him a computer tech guy and he knew less about computers than my late grandmother. Then they made him an employee in the distribution department. Orville almost made a distribution to a former 401(k) participant of $30,000 when they only had an account balance of $18,000. That was a problem. The person in charge of the 401(k) practice actually had to call my boss to ask for permission to fire Orville when many employees were fired for a lot less.

One of the biggest reasons I went into business for myself is because of the nonsense of what I saw as the Norma Principle because I was never going to be “Norma”, I was never going to be favored by any boss whether I was competent or not.

I’ve seen employees favored because of the assumption they were loyal because there were long time employees. Long time employees doesn’t mean that they’re loyal, sometimes people stay at a job because they know how good they have it and some people don’t leave because they cant get hired anywhere else.

I’ve seen employees favored just because the bosses are friendly with them.

I’ve seen employees favored because they were actually incompetent and that made the chief operating officer look competent, the last thing he wanted were employees that threatened him with their competence that made him look bad.

I’ve seen employee who were favored because of nepotism. The law firm associate whose father was a big time partner made partner himself even when he asked whether the law firm I was working at in Boston had a computer system that allowed the backdating of documents.

The employees who should be favored are the ones that do their best, the ones you can trust, and the ones that represent the best value to your organization. The “Norma” in the Norma Principle tends to be incompetent; they tend to backstab fellow employees, and will do almost anything to protect their spot.

To be a good boss, you need to have empathy for your employees. Employees who recognize that there is an employee that is favored not because of what they know and whom they know are going to be resentful and that is going to hurt morale. So the lesson is never to hire a “Norma”, you can hire someone named Norma as long as they are not a “Norma”.

My latest JDSupra.com article can be found here.

There are essentially two types of people at any company: management and the employees.  I always say that I would never hire an employee because I was one (which will change in a few weeks, stay tuned). One of the biggest mistakes you can make in your business as a retirement plan provider is becoming friends with a couple of the employees.

Boundaries are a big deal and there is a clear boundary between management and employees. Cross that boundary and you’re going to have a headache on several fronts. When you become friendly with an employee, it changes the scope of the relationship and that change is always going to be to your detriment as management. Best similar example to that is when I was a Vice President of my synagogue, they wanted to hire a fellow member as a secretary of the office. I was the lone person who spoke out against it. Besides the fact that the member had no experience and has loose lips (which is a concern when it comes member dues and contributions), my biggest point is that it’s hard to fire a member who’s ineffective because they’ll stop being a member after you fire them. If you don’t fire them, then you have an incompetent secretary. Thanks to my big mouth, the decision was shelved because of my strong opposition.

So the point in being friends with an employee is that they stop being an employee and start being your friend. I can’t speak for other people, but I always have strong, positive views of my friends and I always try to see them in the best light and it’s hard to see a friend who is an employee in a negative light. If that employee is ineffective, you either have to get rid of them that will cost you a friendship or you’ll just have a friend who happens to be an incompetent employee.

The other major issue is that have an employee as a friend is demoralizing to those employees who aren’t so chummy with their bosses. Employees who are friends with their bosses are treated far better than those who aren’t and let’s just say that there is a different set of rules for those employees/friends. Having worked for a couple of third party administrators, I can vouch the resentment of those employees who aren’t friends because I was always that employee who certainly wasn’t part of that circle of friends/employees.

Empathy is all about trying to understand how other people feel, so you need to understand what becoming friends with some of your employees will do.