Financial Advisor Misconduct Related to
401(k) Plans

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Employees have legal rights to pursue action against financial advisors that mismanaged their 401(k) plans.

Millions of investors around the nation utilize and depend on employer-sponsored retirement plans such as 401(k)s to invest for financially stable retirements and to secure their futures. Under ERISA, financial advisors managing the plans are fiduciaries, and therefore, most uphold the responsibilities and duties to the plan when making investment recommendations. Financial advisors are required to carefully select and monitor investments, avoid conflicts of interest and prevent excessive fees. If the financial advisors selected by employers fail to appropriately manage these plans, employees have legal rights to pursue action through arbitration.

What Are A Financial Advisor’s 401(k) Responsibilities Under ERISA?

401(k) and other retirement plans are governed by the U.S. Department of Labor and The Employment Retirement Income Security Act of 1974 (“ERISA”). ERISA protects employees by regulating how employers offer and administer 401(k) plans and sets guidelines for fiduciaries who control or direct retirement plan investments.

Fiduciaries may include trustees, managers, and advisors who direct, plan, or otherwise invest retirement funds on the behalf of the plan holder. Fiduciaries who deviate from their responsibilities may be liable to the plan and its holder(s) for any losses suffered.

Sections 3(21) and 3(38) of the Employee Retirement Income Security Act of 1974 (“ERISA”) define fiduciaries and their responsibilities as it relates to employee benefit plans such as 401(k)s.

Section 3(21) defines an ERISA fiduciary as three things:

  1. Someone who provides investment advice in exchange for a fee or compensation;
  2. Someone who exercises discretionary authority or control regarding the management of employee benefit plan; and
  3. Some with the ability to administer the plan, including a plan trustee or administrator.

Section 3(38) defines an investment manager as a fiduciary that has the power to manage, acquire and dispose of any assets in the plan. Under this rule, because of the nature of the responsibilities of an investment manager, ERISA requires the manager to be a registered investment advisor and acknowledge in writing that they are a fiduciary in respect to the plan.

Investment managers/financial advisors are responsible for:

  • Acting solely in the interest of plan participants and their beneficiaries, with the exclusive purpose of providing benefits to them;
  • Carrying out their duties with skill, prudence, and diligence;
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments;
  • Paying only reasonable expenses of administering the plan and investing its assets; and
  • Avoiding conflicts of interest.

ERISA requires financial advisors to act as a fiduciary when providing advice as they are responsible for the selection of suitable investment options and recommendation of those options to a particular participant. As fiduciaries, they must act in the “best interest” of the participants. Failure to perform these responsibilities leaves the financial advisors legally liable for any investment losses within the plans.

If you believe your financial advisor did not act in your best interest when managing your retirement account, contact securities attorney Lawrence L. Klayman to learn about recovery options at (888) 997-9956 or lklayman@klaymantoskes.com

Notice to Retirement Plan Trustees: Be Cautious of Referrals From Payroll Specialists

KlaymanToskes is currently representing employee benefit plan participants in a large 401(k) mismanagement matter against Pensionmark Financial Group LLC. The Plan Administrator with ADP Payroll Services introduced the participants to Pensionmark and its advisors Ryan Gensicke and David Vaughan.

Gensicke advised the employer that the Plan was being mismanaged by only offering American Funds as an investment option as this family of funds had high fees with mediocre performance. These statements by Gensicke were allegedly false and misleading.

Gensicke had assured the employer that Pensionmark would “protect [their] fiduciary interests” and “improve retirement outcomes of your employees.” Instead, Pensionmark and its advisors unsuitably switched the Retirement Plan out of the American Funds, specifically the Growth Fund of America and into the Morgan Stanley Institutional Growth Fund I. This switch violated the duties and obligations that Pensionmark owed the Plan as the Investment Advisor and Investment Manager causing the Plan substantial damages.

Employers referred to Pensionmark Financial Group by ADP may hold the investment advisory firm liable for investment losses. Contact KlaymanToskes today to learn more about your investment manager’s responsibilities at 888-997-9956 or on the web at www.klaymantoskes.com.

Financial Advisors’ Failure to Protect A Plan or Meet Their Responsibilities

As a fiduciary, a financial advisor managing an employee benefit plan must act in the best interest of the plan by avoiding conflicts of interest, meeting due diligence obligations and making suitable investment recommendations.

401(k) conflicts of interest can lead to actionable misconduct and a breach of fiduciary duty, usually causing economic damages to the plan through investment losses or excessive management fees.

Plans that have fallen victim to 401(k) mismanagement should consider pursuing legal action through arbitration. Contact attorney Lawrence L. Klayman today at 888-997-9956 or lklayman@klaymantoskes.com for a free consultation to discuss your legal options.

Signs of 401(k) Fraud and Misconduct

An anti-fraud campaign conducted by the U.S. Department of Labor investigated employers who abused employee contributions and issued the following list of potential warning signs:

10 Warning Signs That Your 401(k) Contributions Are Being Misused

  1. Your 401(k) or individual account statement is consistently late or comes at irregular intervals
  2. Your account balance does not appear to be accurate
  3. Your employer failed to transmit your contribution to the plan on a timely basis
  4. A significant drop in account balance that cannot be explained by normal market ups and downs
  5. 401(k) or individual account statement shows your contribution from your paycheck was not made
  6. Investments listed on your statement are not what you authorized
  7. Former employees are having trouble getting their benefits paid on time or in the correct amounts
  8. Unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees
  9. Frequent and unexplained changes in investment managers or consultants
  10. Your employer has recently experienced severe financial difficulty 

Investment Loss Recovery Options

KlaymanToskes can help you determine whether a retirement plan investment loss is the result of a breach of fiduciary duty, a conflict of interest on behalf of your fiduciary, and/or your fiduciary’s failure to diversify. Contact our firm today at 888-997-9956 to speak with an experienced attorney about your experience with 401(k) mismanagement.


KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.

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