WESTMINSTER CONSULTING
FALL 2015
SEE Inside COMPREHENSIVE RETAINER SERVICES FIDUCIARY DUE DILIGENCE
BEST PRACTICES project engagements FIDUCIARY COMPLIANCE RESOURCE CENTER
Vendor Benchmarking Action Step Checklist
Reengineering
Fiduciary
Welcome. Inside you will find everything you need to familiarize yourself with our firm, our work and the many ways that we are
Re engineering
Flip through
fiduciary
as we introduce ourselves, our services, our process. Let us explain Confero: our quarterly Magazine, and familiarize you with FCRC: a program we uniquely designed to make The Fiduciary process simpler. Give us just a few minutes, and we will give you a complete tour of Westminster Consulting. A firm that can be yours, too. We care about people and organizations just like you, so let us take a moment
& not just tell,
but show
you how very different we really are.
CONTENTS Meet Westminster Consulting
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10
Action Step Checklist
The Partners
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11
Vendor Benchmarking
Project Engagements
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12
Confero
Comprehensive Retainer Services
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13
Stay in the Loop
Our Process
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14
Fiduciary Due Diligence Best Practices
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16
Why Choose Us
Fiduciary Compliance Resource CenterSM
Re-engineering Fiduciary | 1
MEET WESTMINSTER CONSULTING At Westminster Consulting, we specialize in providing incomparable fiduciary advice and counsel coupled with thoughtful investment research to our clients. Our services help Investment fiduciaries and particularly qualified plan sponsors fulfill their responsibilities under ERISA and applicable law. Our singular focus on promoting, developing, and maintaining proper and strong fiduciary governance processes for clients is at the core of our culture and the services we offer. We believe that our role as a “fiduciary” consultant to plan sponsors goes beyond that of a traditional investment consultant. Central to the work we do with trustees is assisting them with the development of and compliance with sound fiduciary practices while delivering exceptional, original investment analysis.
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Our prudent process-based approach enables defined benefit and defined contribution plan fiduciaries to meet their legal obligations, as well as mitigate their potential liability in a cost-effective and practical manner, benefiting all stakeholders of a plan. In addition, the wide array of services offered by Westminster Consulting enables us to provide solutions to the regulatory challenges of managing a qualified plan.
As a leading independent, fee-only fiduciary consultant, we provide plan sponsors with the ability to better navigate and manage the demanding and changing ERISA regulatory landscape. Our independence provides objectivity, allowing Westminster Consulting to provide clients with impartial advice, time-tested industry-leading insights and improved plan results.
Westminster Consulting is focused on promoting a culture of fiduciary responsibility. We do this through providing comprehensive fiduciary advice to investment plan sponsors and fiduciaries: giving them the information, tools and confidence to better navigate and manage the demanding and changing regulatory landscape around qualified plans.
The complexity of the fiduciary plan oversight process is streamlined by utilizing Westminster Consulting’s proprietary Fiduciary Compliance Resource CenterSM (FCRC) technology platform. This secure portal is the first of its kind to provide consistent and accurate plan information in an easily accessible and secure location. FCRC helps plan sponsors control and manage all aspects of plan oversight consistent with the Department of Labor’s ERISA requirements. FCRC is one of the most comprehensive fiduciary management tools available to investment fiduciaries. At Westminster Consulting, we provide informed insight and seasoned expertise in helping investment fiduciaries better manage their legal responsibilities through considered advice, secure technology, and ongoing fiduciary education.
Sean D. Patton Thomas F. Zamiara Partner Partner
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The Partners
Here at Westminster Consulting, We focus on teamwork. Communication and collaboration help us to be successful at meeting the needs of our clients, and our unique array of team members brings a variety of talents and strengths to the table - allowing us to better serve you.
Thomas F. Zamiara, AIFA®
Sean D. Patton, AIF®
Partner, Senior Consultant
Partner, Senior Consultant
Tom is a founding partner of Westminster Consulting and today serves as the managing partner where he currently works with corporate, nonprofit and foundation clients.
Sean is a founding partner of Westminster Consulting where he currently works with corporate, non-profit and foundation clients.
Tom began his career in the financial services industry managing the fixed income desk of the Regional Institutional Sales Group for the Lehman Brothers division of Shearson in Rochester NY. In 1994, he joined Prudential Securities, Inc. and helped develop the Private Client Group and Qualified Plan Consulting Group practices. A graduate of Boston College, Tom also attended The Wharton School at the University of Pennsylvania where he earned his Certified Investment Management Analyst (CIMA®) certification as well as the University of Pittsburgh’s Katz School of Business Accredited Investment Fiduciary Analyst (AIFA®) designation. Today, he also serves as a member of the Brothers of Holy Cross Investment Advisory Committee. tfzamiara@ westminster-consulting.com 800.237.0076
Prior to founding Westminster Consulting, Sean began his career in the financial services industry in 1988 at Dean Witter in Rochester, where he focused on the analysis of mutual funds and how they impacted returns. In 1994 he joined Prudential Securities, Inc. as a Vice President and helped develop their Private Client Group and Qualified Plan Consulting Group practices. In 2009, 401kWire named Sean one of the 300 Most Influential Advisors in Defined Contribution. He is a member of the Goldman Sachs Retirement Advisor Council and the Blackrock DC Leaders Circle. In addition, he is the President of the Board of Directors for Camp Haccamo, a Rotary Camp for individuals with disabilities. Sean is a graduate of the University of Dayton, and earned his designation of Accredited Investment Fiduciary (AIF®) from the Center for Fiduciary Studies (in association with the University of Pittsburgh). spatton@westminster-consulting.com 800.237.0076
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David Bard, CRPS®, AIF® Senior Consultant David is a Senior Consultant at Westminster Consulting where he provides fiduciary governance and oversight services to the fiduciaries and plan committees of qualified plans. Prior to joining Westminster Consulting, David was a corporate retirement plan advisor at Courier Capital Corporation. David’s extensive career experience includes the positions of: Vice President of Investments with Smith Barney, Associate Vice President with McDonald Investments in Buffalo NY, Director of Fixed Income trading for CIBC Oppenheimer, and Vice President of Corporate Bond Sales for Mabon Securities in New York City.
dbard@westminster-consulting.com 716.445.4518
David earned his BA in Economics from Hobart College. He is a Chartered Retirement Plan Specialist (CRPS), has achieved his Series 7, 31, 63, and 65 securities licenses and holds a New York State Life/Accident/Health Insurance license. He is also holds the Accredited Investment Fiduciary (AIF) designation.
Gabriel Potter, MBA, AIFA® Senior Investment Research Associate Gabriel is the Senior Investment Research Associate at Westminster Consulting where he designs strategic asset allocations and conducts proprietary market research. Prior to joining Westminster Consulting, Gabriel previously worked as an Institutional Consulting Analyst with Graystone Consulting – the institutional business unit of Morgan Stanley Smith Barney.
gpotter@westminster-consulting.com
Gabriel earned a BA in Economics and a Certificate of Business Management from the University of Rochester and an M.B.A. with concentrations in Corporate Finance and Computers & Information Systems from the University of Rochester’s William E. Simon School of Business. He currently holds the Series 66 license from the NASD and the Accredited Investment Fiduciary Analyst designation (AIFA®) from the Center of Fiduciary Studies.
800.237.0076
Lawrence R. Peters, CPA, EA Senior Consultant Larry joined Westminster Consulting in January 2010 as a Senior Consultant, where he leads the firm’s defined benefit practice. Larry is a seasoned Human Resources Professional with extensive experience developing and executing Human Resources and Benefit strategies designed to meet corporate objectives. For most of his career, Larry was a Principal at Mercer Human Resource Consulting where he managed client relationships and consulted to clients on benefit and other human resource related issues.
lpeters@westminster-consulting.com 609.462.0524
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Larry is currently a member of the American Academy of Actuaries (AAA), American Institute of Certified Public Accountants, New Jersey Society of Certified Public Accountants and a Fellow for the American Society of Pension Actuaries (FSPA). Larry holds a BA in Economics from Upsala College and an M.B.A. in Accounting from Fairleigh Dickenson University and is both a Certified Public Accountant and an Enrolled Actuary.
Roland Salmi Associate Analyst Roland is an Associate Analyst of Westminster Consulting where he is involved in performance analysis, client projects, and Senior Consultant support. Prior to joining Westminster Consulting, Roland held positions as a financial advisor with Morgan Stanley Wealth Management, and a Junior Accountant at St. Bonaventure University. Roland earned his A.S. in Business Administration and B.S. in Psychology from Elmira College. He then earned his M.B.A. from St. Bonaventure University. Roland has achieved his Series 7 and 66 securities licenses.
rsalmi@westminster-consulting.com 800.237.0076
Jacob Button Director of Software Development Jacob joined Westminster Consulting in May 2008 and currently works as the Software Project Developer for FCRC Apps, LLC, a Westminster Consulting owned company. Jacob continually works to develop and improve eFiduciary.net, a fiduciary governance tool for consultants and their investment fiduciary clients. Jacob also created the Fiduciary Compliance Resource CenterSM, the software program that Westminster uses to promote procedural prudence, consistent documentation and collaboration among members and professionals.
jbutton@efiduciary.net 800.237.0076
Daniel Ward Operations Manager Dan is currently the operations manager for Westminster Consulting. Dan began his career at Westminster Financial in October 2004 as an administrative assistant. Besides his responsibility as the operations manager, he oversees the firms technology needs as well as managing the college intern program at Westminster. A graduate of SUNY Geneseo, Dan studied Business Management and received his Bachelor of Science in May 2004.
dward@westminster-consulting.com 800.237.0076
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PROJECT ENGAGEMENTS GOVERNANCE DOCUMENTS DEVELOPMENT
FIDUCIARY EDUCATION AND TRAINING
These are the essential road maps that help fiduciaries successfully manage their retirement plan. Westminster Consulting evaluates your Investment Policy Statement, Committee Charter, and Board Resolutions and offers advice on improving and clarifying your objectives.
Westminster Consulting assists Boards, trustees, and committees in understanding and fulfilling their role as fiduciaries. The training provides an in-depth look at fiduciary governance today and in the future. This comprehensive review provides executive-level guidance and solutions for the primary challenges facing investment fiduciaries under applicable law and ERISA.
FIDUCIARY REVIEW This comprehensive service benchmarks the plan against twenty-two best practices jointly developed by the DOL and Fi360™. The review evaluates how effectively the plan sponsor is operating their plan and informs the committee of shortfalls or omissions when compared with the benchmarks.
FEE AND EXPENSE AUDIT Timely evaluation of plan fees and expenses is a part of a plan fiduciary’s responsibility. Westminster Consulting examines all asset-based fees, common cost drivers, and investment expenses. This evaluation of fees assists fiduciaries with their due diligence to determine if the fees are fair and reasonable and, therefore in compliance with the DOL’s Section 408(b)(2) regulations.
VENDOR BENCHMARKING Benchmarking provides an impartial and objective analysis of plan vendors such as recordkeepers, actuaries, and managers. Westminster Consulting evaluates these vendors’ performances and conducts an analysis of fiduciary compliance for a plan sponsor— all with the goal of improving performance and minimizing expenses. This benchmarking process includes reviewing fees, investment performance, and also evaluating the plan participants’ satisfaction with vendor service levels.
VENDOR SEARCH This is intended for plan sponsors that desire an impartial and objective analysis of their plan vendor, are dissatisfied with their current recordkeeper’s service, or have grown in asset size and may require different or additional services. The goal is to document fiduciary due diligence of the plan sponsor, improve all areas of plan performance, and minimize expense. Westminster Consulting provides a comprehensive evaluation of all functional areas of plan servicing, including: • Recordkeeping • Plan sponsor services • Trustee services • Conversion • Communication/participant education • Compliance services • Investment services
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PLAN DESIGN
Westminster Consulting will adapt your plan design to best fit your company’s unique needs. We guide clients through every step of plan design and administration. We draft and review plan documents, amendments, notices, summary plan descriptions (SPDs) and summaries of material modifications (SMMs). We assist with submitting plans to the Internal Revenue Service (IRS) for favorable determination letters on their tax-qualified status. If problems arise in the administration of plans, we assist with correcting the issue.
DOL AUDIT ASSISTANCE
The primary objective of Department of Labor (DOL) and Internal Revenue Service (IRS) audits are to ensure that plans are following the applicable laws and regulations established for qualified plans. We are here to make sure that your company abides by these laws and regulations and prepare you should your plan be selected for an audit. Our team works as a liaison between your office and the DOL or IRS agent, collecting, reviewing and providing requested information to the agent prior to the audit date. We also are available for all planrelated questions on the day of the audit. Our goal is to ensure a smooth, concise audit process which works well for the client and the agent.
RETIREMENT READINESS OUTCOME REVIEW
Westminster Consulting works tirelessly to make sure your company retirement plan is preparing participants for a secure retirement. We do this through evaluating how employees are utilizing the plan, how the plan is funded, and if participants as a whole are meeting retirement goals and benchmarks.
OUTSOURCED CHIEF INVESTMENT OFFICER SEARCH
We provide a range of services to institutions who are evaluating Outsourced CIO (OCIO) options. OCIO managers vary widely in the services and products they offer, and a thorough, planned search effort is important. Westminster Consulting’s OCIO search service can help you: • Assist in the design of your OCIO strategy • Evaluate and select OCIO managers • Monitor and report performance of your OCIO managed investment program
COMPREHENSIVE RETAINER SERVICES Ongoing Fiduciary Oversight Westminster Consulting provides an integrated and comprehensive program of Ongoing Fiduciary Oversight to plan fiduciaries. Most Westminster Consulting clients utilize this integrated suite of consulting services. Westminster Consulting provides fiduciaries with analysis and insight to effectively evaluate their plans and manage the associated legal responsibilities.
Ongoing Fiduciary Oversight has four distinct components:
1 PERFORMANCE OVERVIEW—MONITORING & ANALYSIS • Review investments and their compliance with IPS guidelines • Provide fiduciary scoring and commentary on investments • Quarterly review of plan demographics and asset distribution • Review peer group and index benchmarks to current investment options • Development and maintenance of a plan investment option “bench-list”
2 DUE-DILIGENCE • Review and modify, as necessary, the Investment Policy Statement(s) • Coordinate periodic Investment Manager interviews • Coordinate annual plan review with Committee and plan vendor • Conduct a plan record keeper benchmarking study on a mutually agreed upon frequency
3 FIDUCIARY EDUCATION & TRAINING
EACH COMMITTEE MEETING WILL INCLUDE TOPICS SUCH AS: • Basics of fiduciary responsibility • Review legal and regulatory changes and trends • Coordinate outside experts addressing the Committees on fiduciary topics • Modern portfolio theory (MPT) and investment performance • Best practices among retirement plan committees
4 COMPLIANCE Using our dedicated Plan Committee website, the Fiduciary Compliance Resource Center® (FCRC), we will coordinate the Committee compliance requirements for documentation, due diligence and plan governance. The FCRC is our firm’s proprietary web application specifically designed for our clients to assist them in the management and execution of their duties and responsibilities as fiduciaries under ERISA. The FCRC was engineered to manage documentation consistently, provide secure collaboration between Committee members, and to provide a robust document library for safe and convenient storage of plan-related documents.
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ASSESSMENT OF CURRENT FIDUCIARY STRUCTURE Evaluate current committee structure Governance document review Examine current processes & procedures Identify priorities
2 DEVELOP GOVERNANCE POLICIES Review delegation documentation Review board resolutions Review committee charter Examine investment policy statement
3 INTEGRATE DECISION-MAKING PROCESSES Vendor and service provider evaluation Investment line-up analysis Assessment of fees and expenses Document due-diligence
4 DOCUMENT COMMITTEE PROCESS Thoughtful agenda creation Consistent memorializing of committee minutes Annual board report requirement
5 ONGOING FIDUCIARY EDUCATION Updates of regulatory environment Annual fiduciary training Train to think and behave like a prudent expert
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OUR PROCESS
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FIDUCIARY COMPLIANCE RESOURCE CENTER he Fiduciary Compliance Resource CenterSM (FCRC) is a secure web-based fiduciary management platform designed to assist investment fiduciaries in managing their responsibilities by promoting procedural prudence, consistent documentation, collaboration among members and professionals, and an easy-to-access document library. Here at Westminster, we have a Software Project Developer on staff who created FCRC specifically for our clients - to make the fiduciary process simpler.
Through online review and collaboration, the interactions between fiduciaries and vendors are streamlined, thus improving efficiency and plan effectiveness. Access to FCRC enables fiduciaries to efficiently retrieve and review agendas, meeting notes and minutes, recommendations, and committee decisions in a timely and secure manner.
PLAN SPONSOR BENEFITS Manage Fiduciary Responsibility • Provides tools for documentation • Promotes committee collaboration and consistency in decision making • Engages plan committee members • Aligns committees with fiduciary excellence
Mitigate Fiduciary Liability • Provides easy access to archived documents • Demonstrates process • Exemplifies due diligence
KEY FEATURES Document Library and Workbin
FCRC has two document retention systems— the Workbin and the Document Library. Both serve as a medium for organization and work flow management, and each committee has unlimited file storage. This reduces clutter and provides an easily navigated electronic paper trail than ensures clear documentation and evidence of decision making in the event of a challenge or review.
Workbin
The Workbin provides an online collaboration space for work in progress. Minutes, agendas, annual board reports and other items that a committee must have access to, can be stored here while pending review, edits, and approval. Using the comment tool, committee members can easily comment and collaborate on all work in progress.
Library
The Library is designed for archiving finished plan documents, regulatory reports, vendor materials, performance reports, and other documents the Committee deems important. The Library allows committee members to have easy and secure access to plan documents anywhere they have an internet connection.
Calendar
The calendar reminder system helps users to keep tabs on the status of tasks and deadlines assigned to your committee members and important regulatory filing dates.
Minutes
The minutes template provides a consistent and concise format for recording committee minutes. The template allows for collaboration between the committee secretary and consultant for a more efficient and streamlined workflow. Notifications are sent out when minutes are created, commented on, and published for assignment.
Agenda
The agenda template promotes collaboration and accountability. It features the ability to create assignments, attach supporting documents and make comments. The agenda template provides an easy lookback to open items from previous committee meetings.
Annual Board Report
The annual board report template enables the committee and consultant to create a high-level summary of plan activities that is useful in presenting to executive boards.
Consultant’s Notebook
The Consultant’s Notebook is used by the consultant to create and maintain notes from committee meetings. It is viewable by the committee members and serves as a way for the consultant to share important information and meeting notes.
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ACTION STEP CHECKLIST for plan sponsors under ERISA section 408(b)(2)
CRITICAL ACTION STEPS TO BE EXECUTED BY PLAN SPONSOR: Identify the plan’s covered service providers. Covered providers generally include fiduciary investment managers and advisors, plan recordkeepers, broker/dealers, and providers receiving “indirect” compensation.
Confirm delivery of existing providers’ 408(b)(2) disclosures. Contact each of the plan’s existing covered providers to confirm that the required 408(b)(2) disclosures will be provided.
Confirm annual delivery of disclosures for plan’s investment options.
The plan’s record keeper must deliver updated fee and expense information for each of the plan’s investment options. Confirm updated disclosures will be provided annually.
Review adequacy of providers’ 408(b)(2) disclosures. Confirm the following required elements are described in each provider’s disclosures: • Services • Direct and indirect compensation • Fees upon termination of services • Status as a fiduciary (if applicable) • Compensation for subcontractors (if applicable) • Method of payment
Request missing info from any provider with a disclosure failure. If a provider fails to deliver its closures by the appropriate date, or if the disclosures are inadequate, send a written request to the provider immediately for any missing information.
Report disclosure failure if provider refuses to provide missing info. If the provider refuses or fails to reply to a written request for missing information within 90 days, report the disclosure failure to the DOL with the assistance of counsel.
Consider terminating provider’s services if disclosure failure occurs. Consider the prudence of continuing the provider’s services if a disclosure failure has occurred. If reported to the DOL, terminate the arrangement immediately if it relates to future services.
Obtain and review 408(b)(2) disclosures from any new provider. With respect to any new provider or any existing provider extending its services, review the provider’s 408(b)(2) disclosures reasonably in advance of making any service decisions.
Use a prudent review process or engage an outside expert to evaluate provider’s services and fees. Review all disclosures and evaluate the provider’s services and fees on an ongoing basis in accordance with a prudent review process.
Review any changes and updates to 408(b)(2) disclosures. Take into account any relevant changes made by a provider to its 408(b)(2) disclosures when evaluating the provider’s services and fees. 10
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Vendor Benchmarking As fiduciaries, plan sponsors have an obligation to benchmark and evaluate fees and services under ERISA. It is both a fiduciary breach and a prohibited transaction to allow your plan to pay more than reasonable expenses. Now that plan sponsors are receiving disclosure from covered service providers under 408(b)(2), that duty is more explicit. This regulation concerns the disclosures that must be furnished to plan fiduciaries in order for a contract or arrangement for plan services to be “reasonable.” The Department of Labor has stated that it believes that plan fiduciaries need this information, when selecting and monitoring service providers, to satisfy their fiduciary obligations under ERISA 404(a)(1) to act prudently and solely in the interest of the plan’s participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. At Westminster, we know that even the most diligent sponsor can find the retirement plan benchmarking process overwhelming if undertaken single-handedly. We assist the fiduciaries of qualified plans in a thorough vendor analysis, offering clear recommendations and support throughout the process. Either as a stand-alone service or part of the Ongoing Fiduciary Oversight engagement, vendor benchmarking is a critical element in monitoring and evaluating how effectively plan providers are performing. ERISA requires that benchmarking is done on a consistent and regular basis. Westminster Consulting will evaluate plan vendors by identifying and evaluating 4-6 like market-positioned vendors to your current partner, using the following criteria: Throughout the process, questionnaires are sent to each vendor and then we follow up with an interview with the respondents.
Fees and Expenses
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Investment Flexibility Participant Experience
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Plan Sponsor Common Needs/Objectives
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• Understanding recordkeeping, administration costs and competitiveness of fees. • Fiduciary documentation as part of an annual plan review process. • A means to compare their plan to other plans in their industry. • To guide their participant education and communication efforts.
Fiduciary Benefits
• Clear documentation of an objective fiduciary process. • Lower probability of litigation. • Opportunity for reducing the cost of fiduciary liability coverage (if applicable). • Above and beyond the requirements of 408(b)(2) compliance in obtaining full fee disclosure.
Assists in Plan Management and Oversight
• Supports plan design and benefits decisions by relating your plan to other plans like yours. • Enables you to understand and move the plan toward “best practices.”
Plan Participant Benefits
• Not overpaying for services; helps maintain reasonable plan fees. • Improved plan education and communications programs due to focus on Participant Success Measures. Re-engineering Fiduciary | 11
CONFERO
WESTMINSTER CONSULTING’S QUARTERLY PUBLICATION
CONFERO CONFERO A quarterly publication of Westminster Consulting
A quarterly publication of Westminster Consulting
www.ConferoMag.com
ISSUE NO. 10
www.ConferoMag.com
ISSUE NO. 8
confero A quarterly publication of Westminster Consulting
www.ConferoMag.com
The Endowment and Foundation Issue
NON-PROFIT
A quarterly publication of Westminster Consulting
www.ConferoMag.com
ISSUE NO. 9
confero A quarterly publication of Westminster Consulting
www.ConferoMag.com
CENTER FOR
RETIREMENT STUDIES
PLAN DESIGN
TO IMPROVE
BENEFITS & PERKS
RETIREMENT
READINESS
TIBBLE v. EDISON WHERE DO WE GO FROM HERE?
ALSO:
ALSO:
Nonprofit Law Compliance
WASHINGTON’S WASHINGTON’S IMPACT IMPACT
ON THE MARKET
An Interview with Terry Knapp Financial Security and Careers in the Nonprofit and Philanthropic Sector
9 1/2 QUESTIONS
ALSO INSIDE ENDOWMENT& FOUNDATION SPENDING GUIDELINES /// DEMONSTRATING GOOD STEWARDSHIP FOR ELEEMOSYNARIES
A Chat with Cindy Rubino from Contractors Register
TALES FROM THE TRENCHES Q&A with William Hughes of Business Allies Group.
RES IPSA LOQUITUR
Will the Dodd-Frank Act of 2010 Bring True Economic Recovery?
Wellness Programs in a Multigenerational Workplace
How to Attract and Retain Employees: A Focus on Non-Monetary Benefits 5 Tips for Creating and Running a Successful Benefits and Perks Program
As part of its unique marketing initiatives, Westminster Consulting publishes a quarterly magazine, Confero: focusing on relevant fiduciary, investment consulting, and compliance issues for plan sponsors. We request articles from prestigious experts in the field, cite reliable industry sources, and write our own material to ultimately create a publication that is timely, useful, interesting and pertinent to our audiences. Not only does Confero help us keep our clients informed regarding major issues (compliance, regulatory, and investment consulting) in the industry, but it also allows us to build consistent relationships with additional, outside experts who, like Westminster Consulting, are focused on assisting plan sponsors meet their fiduciary obligations. Our on-staff actuaries and analysts also write articles and white papers for large publications. Our award-winning articles have been included in the Journal of Compensation and Benefits, PlanSponsor Magazine, and Advisor One. We have also contributed articles to Fiduciary News, Human Resources Online, and Rep Magazine. We encourage you to visit our website http://www.westminster-consulting.com where you will find our original blogs posted weekly, our monthly newsletter, and our quarterly magazine publication, Confero. If you would like to receive Confero directly to your inbox, email info@westminster-consulting.com and let us know!
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ISSUE NO. 3
BOSTON COLLEGE:
A FOCUS ON
ORGANIZATIONS
CONFERO
ISSUE NO. 1
Stay In The L00p
Follow us on Twitter @westmconsultng Check out our LinkedIn profile Westminster Consulting, LLC
Weekly Flash Report
The Markets and Economy • • •
The U.S. economy GDP shrank 0.7% in the first-quarter due to trade and inventory data. Durable goods orders were down a seasonally adjusted 0.5% in April from the previous month. The pending home sales index rose 3.4% in April from the previous month.
• • •
New home sales rose a larger-than-expected 6.8% in April. The FIFA scandal is now being turned on the banks that were used to pay $150 million in bribes. Banks involved include: JP Morgan, Citigroup, HSBC, Bank of America, to name a few. Initial unemployment claims rose by 7,000 to 282,000.
Regulatory Chatter and Industry Trends •
The DOL filed a suit against Alfred and Judy Chan the fiduciaries of a pension plan for employees of their medical corporation. The Chans relocated to Taiwan to avoid an indictment for Medicare fraud. The Chans used pension plan assets to pay for personal debts, personal legal fees and other non-plan expenses and investments. Specifically a $200k investment in Facebook.
• •
SEC charges Laurence Gray and Robert C. Hubbard IV of fraud for breaching their fiduciary duty by selling unsuitable investments to Atlanta’s Pension Fund. A group of retired teachers from Wisconsin are suing over illegal post-retirement 403(b) contributions that were subject to taxes because they didn’t follow 403(b) regulations.
Investment Manager News • • •
Abu Dhabi Investment Authority hires John Pandtle as head of U.S. in its internal equities group. PIMCO Australia names David Erdonmez as account manager and head of the firm’s investment due diligence group. SEC brings back former investment management director Andrew J. “Buddy” Donohue as chief of staff.
• •
FINRA CEO Richard Ketchum said the Labor Department’s April proposal would create new legal risks for brokers and reduce the number of investment options offered to clients. Mass Mutual hires Michele Baldasarre as VP of institutional markets for MassMutual Retirement Services, in charge of relationship management for retirement plan clients.
What’s Ahead • • • • •
• • • • •
PMI Services Flash – June 1, 2015 ISM Mfg Index – June 1, 2015 Factory Orders – June 2, 2015 ADP Employment Report – June 3, 2015 EIA Petroleum Report – June 3, 2015
Jobless Claims – June 4, 2015 EIA Natural Gas Report – June 4, 2015 Bloomberg Consumer Comfort Index – June 4, 2015 Employment Situation – June 5, 2015 Consumer Credit – June 5, 2015
Please visit www.westminster-consulting.com for our newsletters, blogs, and other musings.
Every week, we send out a Flash Report to interested individuals. The Flash Report is put together to keep ourselves and our clients informed and updated on timely occurrences in the market/economy, regulatory changes, industry trends and investment manager news. We also help you plan for the future by including a “what’s ahead” section in the report. This Flash Report is just a quick slide sent to our clients via email, taking only a couple moments to read while informing you efficiently about an entire week’s happenings in the industry. Email info@westminster-consulting.com to receive the Weekly Flash Report!
Hard currency: the strong US dollar
Gabriel Potter, AIF Senior Investment Research Associate May 2015
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Cause of weakness in corporate earnings
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he United States corporate earnings numbers have suffered relative weakness in the 4th quarter of 2014 and the 1st quarter of 2015. Some of the causes of weak earnings are one-time irregular actions, such as the increased corporate pension liabilities stemming from updated actuarial rules of 2014. Beyond these one-shot issues, there are two ongoing factors which appear conducive to economic growth, but have led to recent problems: the price of energy and the strong dollar. We have directly considered the falling price of energy in our blog posts (“The Price Ceiling on Oil” - December 31, 2014) and in our monthly articles (“The Energy Sector” – December 2014). On the other hand, we have only tangentially addressed the implications of a strong US dollar. So, in this paper, we will review the strong US dollar and what it means for investors.
Pros and cons of a strong dollar First, let’s define a strong dollar and then enumerate some of its advantages and disadvantages. Simply put, a strong currency, or a “hard” currency, has a great deal of buying power. A strong currency maintains its buying power over time, so it is strongly associated with an inflation-averse, “tight”, restrictive monetary policy from that government’s central bank. A strong currency is stable and widely used between global trading partners. Conversely, a weak currency, or a “soft” currency, is subject to price swings, instability, and is associated with potential loss in trading value versus other currencies or inflation. A quick review of this definition makes it appear as if there are no disadvantages with a strong dollar. There is, however, a key disadvantage to stronger currency: exporting. If your country derives most of its revenue from international trade, a strong currency gives you the opportunity to buy (or import) goods and services inexpensively. However, a strong currency means that your exporters are at a disadvantage because the goods or services they are trying to sell on the open market are relatively expensive.
A quick review of this definition makes it appear as if there are no disadvantages with a strong dollar. There is, however, a key disadvantage to stronger currency: exporting. If your country derives most of its revenue from international trade, a strong currency gives you the opportunity to buy (or import) goods and services inexpensively. However, a strong currency means that your exporters are at a disadvantage because the goods or services they are trying to sell on the open market are relatively expensive.
Correcting the dollar with trade So, we’ve been talking about the dollar being strong, relative to other currencies, but what determines whether a currency is strong or weak? Like everything else in economics, it is a case of supply and demand. Global investors engage in currency trading for a variety of reasons, including hedging their current exposure, speculating on currency like any other investment, or conducting carry trades. For a greater understanding of this practice, we encourage you to read our March 25th blog post, “The Carry Trade”. Global investors can buy, sell, and trade currencies, just like other goods. Global investors determine a currency’s value by making and accepting trades on a free, open capital market. The relative value of each currency is determined by daily market sentiment, optimism for a country’s growth prospects, analysis of monetary policy and macroeconomics, and a fair dash of random chance. As the supply and demand for various currencies equalize on the open market, the global investment community determines which currencies get stronger and weaker. Imagine, for a moment, you start off the year with a strong currency, wherein your importing power is high and your competitive exporting power is low. This creates a trade deficit, where your country buys more goods and services than it sells to other nations. Economic theory suggests, over time, this trade deficit should increase the supply of your currency (let’s say, dollars) being used across the globe. Again, an increase in supply should thus reduce the currency’s relative value. In other words, a trade deficit – in theory – should be a self-correcting phenomenon as a temporarily strong currency pushes so many dollars into the world.
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Monthly Newsletter On top of the Weekly Flash Report, once a month our research analyst compiles a monthly newsletter. Entitled, Westminster Academy, this newsletter consists of a longer white paper on a relevant topic such as the positioning of U.S. currency, an analysis of alternative energy, and quarterly updates. The Westminster Consulting newsletter keeps you in touch with important issues around finance, the economy, retirement planning, and other relevant world topics. Visit http://westminster-consulting.com/Resources to see an archive of our monthly newsletters. Click on an article to sign up and receive the newsletter directly to your inbox!
Blog We put out a weekly blog post on our company website as well. The post is just a few short paragraphs on a current topic in the industry, and is intended to keep visitors to our site engaged and informed on relevant issues. Visit http://westminster-consulting.com/Blog to view our recent blog posts, written by our senior investment research associate Gabriel Potter
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FIDUCIARY DUE DILIGENCE
START WITH THE BASICS
Address Other Issues
• • • •
COMPARE ALL RE PROPER BE
IPS STATEMENT CHARTER BY LAWS PLAN DOCUMENT
enrollment updates
MAINTAIN AN
ITEMS BESIDES TO MO
client service issues
31 regulatory updates
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Let Your IPS BE YOUR GUIDE
Establish quarterly plan committee meetings
Vendor Performance
REASONAB FE
Are Vendors complying with their written agreements?
Comp indep bench
BEST PRACTICES
ETURNS TO THEIR ENCHMARKS
Identify and Prevent Conflicts of Interest
MINUTES SHOULD INCLUDE:
Attendees
ND MONITOR
S INVESTMENTS ONITOR:
BLENESS OF EES
pare to pendent hmarks
DOCUMENT EVERYTHING
PLAN DESIGN Make sure plan design meets current needs and remains in compliance
Questions TO ASK: • HOW ARE SERVICE PROVIDERS BEING COMPENSATED? • HOW DO INVESTMENTS COMPARE VS. IPS CRITERIA? • DOES OUR COMMITTEE UNDERSTAND THEIR FIDUCIARY DUTY?
TOPICS COVERED Key Questions or Discussions Decisions Made
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WHY CHOOSE US We’ve given you the facts, the details, the information. But the decision is in your hands. So, Why Choose Westminster Consulting?
Here at Westminster Consulting, you are our top priority. With a specialized team of highly diverse individuals working every day to help our clients, we aim to provide comprehensive fiduciary advice to investment plan sponsors and fiduciaries, giving them the information, tools, and confidence to better navigate and manage the demanding and changing regulatory landscape around qualified plans. Westminster is a fee-only advisor, meaning that we work solely for our clients and are compensated exclusively by a previously agreed upon fee. Therefore, we are completely objective in our evaluation and can recommend a course of action based only on strategic financial considerations. Westminster Consulting has a wide range of clients in multiple industries: retailers, foreign-owned entities, non-profit healthcare providers, and manufacturers to name a few. Our broad experience with a variety of complex issues - including discrimination laws, Department of Labor audits, company stock unitization, and plan harmonization - allows our senior consulting staff to provide insightful and comprehensive advice on a variety of issues. The strength of our firm is our focus on mitigating risk for all fiduciary stakeholders through our intensive fiduciary/investment consulting services that very few firms possess. Westminster’s centralized and expert team provides a boutique atmosphere that allows us to pay extreme attention to detail and have a magnified focus on our clients. We thoroughly understand the needs of our clients by forming personalized relationships with them and building a trust that many advisor-sponsor relationships lack. Overall, Westminster’s diverse staff and expertise in both defined benefit as well as defined contribution plans will ensure that we provide the absolute best advising for you. 16
Thank you for reading. Re-engineering Fiduciary | 27
WESTMINSTER CONSULTING Westminster Consulting, LLC 11 Centre Park - Suite 303, Rochester, NY 14614-1115 800.273.0076 www.westminster-consulting.com