This article this week from the Wall Street Journal–“Arbitrations Over Funds Reach Record Levels Irate Investors Challenge Brokers On Sales Practices, High Costs; Going It Alone vs. Class Actions–caused me to wonder how many of the lawsuits that are predicted to be brought over the current mutual fund scrutiny will involve ERISA fiduciary claims. The article notes that regulators are investigating “whether investors paid higher-than-necessary sales charges when buying mutual funds” and discusses how this summer, “the NASD issued an investor alert relating to the sale of so-called B shares, which carry no upfront sales charge, but carry higher annual fees and back-end loads that are imposed if the investors sells within a few years.” According to the article, for investors who remain in a fund for more than a few years, these shares can be more costly than shares with an upfront sales charge. The article goes on to say that “the NASD expects to see more arbitration complaints involving B shares and fund sales practices next year, after regulators complete their investigations.”
The questions that come to mind from reading this article are: in the retirement plan arena, when can a broker become an ERISA fiduciary? And, are arbitration clauses enforceable under ERISA? And is it prudent for plan fiduciaries to enter into contracts with financial services firms which contain mandatory arbitration clauses?
When can a broker-dealer become an ERISA fiduciary?