Overland Park-based Prime Capital Investment Advisors recapitalized itself by offering an ownership stake to its financial advisers, adding 88 new partners on Friday.
Many successful leaders tend to be nonconformists. They often demonstrate individualism at an early age and aren’t afraid to break a few rules. It’s part of what makes them so successful. But their risk-taking behavior, especially in their personal lives, can present unique challenges for the boards that manage their companies.
What would happen to a company’s business plan or board of directors if, say, the Chairman of the Board decided to take a rocket ship into space? Or, a board member faced a health concern that changed everything?
A recent NPR segment, Corporate Boards Find It Difficult To Limit Executives’ Risk-Taking Hobbies, highlighted these questions and the critical need for corporate boards to plan for inevitable, albeit unpredictable, change. While succession planning isn’t going to grab any juicy headlines, it is the tried and true method for mapping the long-term viability of a company.
So how does your organization get started on this journey? Here’s a hint – You don’t have to touch the edge of space to get going. Here are the three big things corporate boards need to do about succession planning right now.
CREATE: Creating a written succession plan is the first step to providing stability to the organization during times of crisis and change. This will be a living, breathing document that will be updated over time, but the first charge is to outline the steps that the board will take to fill a position whether it was vacated due to an emergency or a planned departure.
IDENTIFY: Identify potential leaders both inside and outside the organization who align with your corporate goals to fill these vacated positions. Viewing this process as a way to develop and mentor strong leaders for your organization will also get the board motivated to make progress on this step.
MEASURE: Measure your progress by holding outgoing interviews with retiring or exiting board members. I also recommend an annual board performance assessment that is both self-reflective and evaluated by fellow board members. Ongoing policy review and analysis will ensure that the succession plan is executable. Making succession planning a mandatory annual agenda item for discussion at board meetings is key.
Policy adherence begins at the top and the board must lead by example. Proactive succession planning puts your organization and your stakeholders at ease no matter what arises…..even if it’s a rocket ship.
All investment and financial opinions expressed are intended as educational material. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.
United States Supreme Court to Hear Excessive Fee Case
We have experienced a fair amount of retirement plan litigation over the last decade. The litigation pace picked up during the COVID-19 pandemic and shows no signs of slowing down. That pace could accelerate, in fact, if the United States Supreme Court rules that plaintiffs can proceed in the Hughes v. Northwestern University suit. Although the Court will not hear oral arguments until October at the earliest, it is important for plan fiduciaries to be aware of its potential implications.
The Complaint. The nation’s most prominent ERISA litigation firm filed suit on behalf of participants in Northwestern University’s defined contribution plans. The complaint included many of the allegations common among recent retirement plan expense lawsuits, including: (i) excessive recordkeeping fees; (ii) the failure to benchmark the recordkeeping fees; and (iii) the use of expensive share classes when cheaper share classes of the plans’ investment options were also available.
Motion to Dismiss. The next part is critical: we’re not even to the point in the litigation process when the trial court would decide whether those allegations were valid. The trial court granted the defendants’ motion to dismiss, and the Seventh Circuit Court of Appeals upheld the dismissal. The plaintiffs asked the United States Supreme Court to hear their argument that the lower courts erred in dismissing the case. This request relies upon precedent in other Federal circuits that would have allowed the plaintiffs’ case to proceed to discovery.
Supreme Court Takes the Case. Before responding to that request, the Court asked the Solicitor’s Office to provide the Department of Labor’s (DOL’s) position regarding the split in the federal circuit courts and the significance of the issues. The Solicitor’s Office filed a brief reflecting its clear belief that plaintiffs should be allowed to pursue their claims and that “the question of what ERISA requires of plan fiduciaries to control expenses is important to millions of employees throughout the Nation whose retirement assets are invested in ERISA-governed plans.” The Court “granted certiorari” – thereby agreeing to receive arguments from both parties – because of the split in federal circuits’ approach and the significance of the issue.
Why Does This Case Matter? Well, it is certainly important to the plaintiffs and defendants involved in the lawsuit. But more broadly, it’s important because the most pivotal point in these large lawsuits is whether a plaintiff can survive a motion to dismiss. If it survives the motion, the looming threat of discovery is much more likely to motivate settlement negotiations. If plaintiffs cannot survive that motion, the case falls apart, and the dream of a settlement or courtroom victory goes up in smoke.
The Court is likely to establish the clearest set of principles dictating what is – and what is not – sufficient for plaintiffs to survive a motion to dismiss in a retirement plan fee lawsuit. The Court will not offer an opinion on the plaintiffs’ claims; it will simply determine whether they receive their day in court to present those claims.
What Should Fiduciaries Do Now? It would be reasonable for fiduciaries to decide not to wait for the Court’s opinion, which likely will not arrive until 2022. If the Court supports the plaintiffs’ perspective, plaintiffs will be able to move forward. Even if it does not, the DOL has shared its opinion on this type of fact pattern, and it’s quite clear the DOL is sympathetic with plan participants.
As we look around the country, the last decade of litigation has paid dividends for many plan participants. Yet many others continue to participate in plans with recordkeeping services that have not been benchmarked and/or investment options that are more expensive than they need be. Taking into account the Court’s upcoming consideration of these issues and the DOL’s position, we anticipate many plan fiduciaries will ramp up their due diligence efforts during the back half of this year. As always, those efforts shouldn’t focus too heavily on the cheapest option, but they should be on the lookout for value. Participants and fiduciaries will benefit as a result.
Open Enrollment As we talk to plan participants this fall, it’s apparent that they’re awash with uncertainty. Throughout the last couple of months – before, during, and after the election – the markets have been trying to tell participants that they shouldn’t be as…