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Regulation and Compliance > State Regulation

Amici Curiae Brief Filed in Supreme Court for Deere Case

By Kate McBride

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Two independent professional fiduciaries, Matthew D. Hutcheson and Brooks Hamilton, have filed an amici curiae, or friend of the court, brief in the Supreme Court of the United States in support of the petitioners in Dennis Hecker, et al., v. Deere & Company, et al. The Court is considering whether to hear the case.

Fiduciary360 (fi360), which provides training and other services to support fiduciaries, the Centre for Fiduciary Excellence (CEFEX), which evaluates and certifies firms’ fiduciary practices, and The Committee for the Fiduciary Standard, a group of industry leaders who have called on Congress ensure that the authentic fiduciary standard is part of any new legislation and regulation, supported the brief.

This case is sure to be watched closely by the financial services industry, which is enthralled in debate over whether all who deliver investment and financial advice to individual investors ought to be held to the same standard of fiduciary duty that investment advisors are held to, or the lesser, suitability standard, or something in between. The Senate and House draft versions of the Investor Protection Act both call for all who provide investment and financial advice to individual investors to be held to fiduciary duty, which is the “highest standard known to the law,” according to the brief.

Hutcheson told Wealth Manager via email that, “the bundled 401k providers KNOW that if they are held to that standard, they will no longer be able to share hidden revenue as they have in the past. That is the reason they have worked so hard to avoid fiduciary status. This could be a watershed moment for investors and plan participants.” Hutcheson is a member of The Committee for the Fiduciary Standard, as is this editor.

The case involves a class-action suit by Deere & Company 401(k) beneficiaries against the plan’s fiduciaries, alleging that they “breached their fiduciary duty to participants and beneficiaries,” by failing to “identify,” “understand,” and “act,” when revenue sharing in the account “exceeded a reasonable level.”

At the heart of the case is the difference between the “fiduciary standard,” which in the 401(k) ERISA world is known as “the ‘prudent expert rule,’” according to the brief, and the “market ‘suitability’ standard (a lesser, non-fiduciary standard),” which the brief alleges, “is not sufficient to determine reasonableness and fairness of plan costs and satisfy associated ERISA obligations.”

The amici curiae brief argues that “the lower courts have misinterpreted the matter now before this Court as a “mutual fund” pricing issue. The lower courts erred in that interpretation.” It says further that the fees the pension plan’s fiduciaries allowed were “excessive and unreasonable,” based on the plan’s size and number of participants, and estimates that, “participants were unnecessarily harmed because defendants failed to understand and then act upon their most fundamental, fiduciary duty.”

For services that, “a leading provider of retirement plan services for large employers (www.milliman.com) would charge approximately $1,195,000 for,” the brief states, “It is estimated that defendants permitted at least $2,362,703 to be charged for the same general services.” But it goes on to state: “From first-hand knowledge of amici, the excess revenue sharing fee could actually be as high as $7,848,000 annually.”

Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

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