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Court ruled that a Fiduciary’s duty of Prudence Requires Continued Monitoring

Friday, May 22, 2015

It is not only ERISA practitioners and plan administrators who have been watching Tibble v. Edison International with interest, but trustees as well. The Supreme Court granted certiorari and "in doing so, the Court did not signal whether it would address the continuing-violation theory espoused by plaintiffs, or the policy concerns underpinning the Ninth Circuit’s decision. The Supreme Court bypassed these issues. Instead, it vacated the Ninth Circuit’s ruling, and remanded for additional consideration of the fiduciaries’ ongoing duty to monitor the prudence of the... funds. The Court couched its decision in traditional trust law, which requires a “regular review” of trust investments. The Court also found support in the Uniform Prudent Investor Act (UPIA), which the Court viewed as embracing a continuing duty to monitor plan investments."

Unsurprisingly, the Court did not provide guidance on how to evaluate those duties, except to hold that “'changed circumstances' (that is, circumstances that would render an otherwise-prudent investment imprudent) was not the only scenario in which a fiduciary’s failure to re-evaluate investments might run afoul..." 

"Nevertheless, plan administrators [and trustees] should keep an eye on the proceedings on remand, to see how the Ninth Circuit’s decision applies [the] monitoring duty to defendants’ retention of the... funds... Although periodic re-evaluation of all plan investments is already a “best practice,” the decision on remand may offer guidance on particular circumstances that call for fiduciary scrutiny of specific investments."

UPIA Section 7 requires that trustees “may only incur costs that are appropriate and reasonable in relation to the assets, purpose of the trust, and skills of the trustee.”  Case Law also reveals that premiums are not the measure of policy costs. As the Tribble case above illustrates the importance of measuring the costs of life insurance and also reviewing these costs periodically to make sure that the expectations of the policy are being realized and any unexpected changes are revealed.

INSPECT WHAT YOU EXPECT! Use a Veralytic Research Report to measure policy expenses as one of the 5 factors of suitability. If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based "wrap fees" (e.g., M&Es) and premium loads in their life insurance policy holdings now, then there will be no way to know if or when such policy expenses are increased. Now is the time to find out. 


Veralytic is the only patented, objective and rules-based research tool that goes beyond the overly-simplistic comparisons of illustrations of hypothetical policy values that can be considered “misleading” and “inappropriate” by both financial and insurance industry authorities. Veralytic’s independent research reports provide a facts-based solution that is both compliant with industry regulations and established case law.


Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest.  Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law. 


Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability.  Get up to 3 Veralytic research reports under our NO-Risk trial subscription.

re: Court ruled that a Fiduciary’s duty of Prudence Requires Continued Monitoring

Friday, May 22, 2015 David F. Sterling, Esq., Consultant

Though the significance of the Court's decision to the "fiduciary" discussion is apparent, it is very restrictive.  I am inclined to believe that Mr. Flagg may have "overstated" the application of the decision to Veralytic's life insurance policy management protocol.

This commentary is not offered to discount the significance of the protocol, it is offered to "rein-in" the reach and relevance of promotional activities.

David F. Sterling, Esq., Consultant

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