Letter to 6,000 401(k) sponsors has advisers doing damage control

Says fees are too high, threatening publicity blitz; written on Yale prof's letterhead

Jul 18, 2013 @ 10:40 am

By Darla Mercado

Advisers are rushing to do damage control with plan sponsor clients who received letters that appear to be from a professor at Yale Law School claiming that their 401(k) plans are too expensive.

The letters, which appear to be sent by Professor Ian Ayres, were sent to employers in recent weeks, raising concerns among plan sponsors. InvestmentNews obtained three of the letters, all of which are slightly different. Each one claims, however, that Mr. Ayres had been working on a research study that purports to measure “the relative costs to 401(k) participants of menu limitations, excess fees and investor allocation mistakes.”

The letters tell recipients that not only are their fees too high, but that “fiduciary duties are the most stringent imposed by the law.” One of the letters threatens “to publicize the results of our study in the spring of 2014” and to “make our results available to newspapers (including The New York Times and Wall Street Journal), as well as disseminate the results via Twitter with a separate hashtag for your company.”

Yale Law School did not make Mr. Ayres available for an interview.

"Professor Ayres sent some letters to retirement plan fiduciaries as part of his research on the impact and regulation of costs in retirement plans," Yale Law School spokeswoman Janet Conroy said in a statement. "The letter was motivated by a desire to inform the recipient about the results of his scholarship and analysis of historical data regarding these plans."

The letters claim that Mr. Ayres is using data from companies' Form 5500 filed with the Labor Department in 2009 and information from BrightScope Inc. Ms. Conroy confirmed that Mr. Ayers used data from Brightscope.

BrightScope officials informed the American Society of Pension Professionals and Actuaries that that they had asked that the professor to stop using their data and stressed that they were not involved with the professor's use of their data, according to Brian Graff, chief executive of ASPPA.

“BrightScope reached out to us and told us they had nothing to do with it; I think they've been responsive in that regard,” said Mr. Graff. “[Mr. Ayres] has already sent 6,000 letters, and the damage is already somewhat done.”

ASPPA has not decided how to proceed, but it's considering its options, Mr. Graff said. Executives at BrightScope were not available for comment.

"Professor Ayres is not affiliated with Brightscope and has received no research funding or any other compensation from them," Ms. Conroy, the Yale Law School spokeswoman said in the statement. "His research simply makes use of some of their data."

On the law school's website, Mr. Ayers is listed as a lawyer and economist who is the William K. Townsend professor of law.

Meantime, advisers working with the plans that have received the letters have a huge mess on their hands.

David Halseth, owner of Strategies LLC, a firm that oversees some $3 billion in retirement plan assets, had to reassure one of his clients that not only was the letter using old information, but it also made no reference to the service he provides the plan.

“In our latest total-cost analysis, this plan was 33% below the average for like-sized plans in the industry,” Mr. Halseth said. “The Yale letter said that this plan was in the bottom 84% of plans and identified it as a high-cost plan. That's absolutely false.”

Mr. Halseth reviewed with the client the total-cost analysis, spelling out all of the fees involved in the plan, and produced benchmark results to show how it stood up against other plans within the industry.

Mr. Halseth said his attempts to contact Mr. Ayres were fruitless.

“In my mind, that's a horrible and egregiously wrong thing to do,” the adviser said of the letter. “They're scaring people; they're jeopardizing the relationship with the client.”

Even if the letters are no longer going out to plan sponsors, there likely will be a long-lasting impact on the retirement plan industry.

“Because of [plan fee disclosure mandates] and evaluations of advisers and providers, the industry is sensitive to any suggestion that it's overpriced,” said Fred Reish, a partner with Drinker Biddle & Reath LLP's employee benefits and executive compensation group. “This rubs salt in the wound.”

He added that the kerfuffle around the letters likely will attract the attention of plaintiff's attorneys.

It's important that advisers whose clients have received the letters contact those clients in case the letter comes up in a Labor Department audit, noted Marcia Wagner, managing director at The Wagner Law Group.

“If you're protecting the plan sponsor and they get a letter like this, you have to have something in your file that says you have addressed it,” she said. “If there's an audit and the DOL finds it and sees that nothing has been done, then that's negligence.”

News of the letters was first reported by 401kWire.


What do you think?

View comments

Upcoming event

Nov 13


Top Advisory Firm Summit

Formerly known as the Best Practices Workshop, this new one-day conference will also include content from the Best Places to Work event!The Top Advisory Firm Summit will provide CEOs, COOs, CTOs, CMOs, and Managing Partners from the... Learn more

Most watched


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Latest news & opinion

The growth of factor-based investing

Advisers are making decisions about clients' portfolios by using the same characteristics that govern factor-based ETFs.

Finra makes its list to target hundreds of rogue individuals

The regulator sees patterns in the behavior and disclosures of high-risk brokers.

LTC insurer offering co-pays to blunt soaring premium increases

John Hancock policyholders would get a discount on their premium in return for agreeing to pay a bigger portion of their claims in the future.

Goldman Sachs acquires United Capital

After a payday of $75 million or more, CEO Joe Duran plans to join Goldman in a senior position.

Private equity loves IBDs, but will that last?

Three big acquisitions in less than a year signals renewed life in the formerly beleaguered industry.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print