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Fund Families sued by their own employees over their retirement plans??

August 24th, 2016

Over the past two years, a number of investment firms have been sued by their employees over their 401(k) plans. That’s right! Investment firms have been sued over their own in-house retirement plans! Why? In most cases, these firms would only provide proprietary funds to their employees at a full or slightly reduced cost. In fact, here are just a few of the recent cases from the past two years:

1. Transamerica
2. Fidelity Investments
3. Ameriprise
4. New York Life
5. Great West (Empower)
6. MFS Investment Management
7. Waddell and Reed
8. Allianz Global Investors
9. MassMutual
10. Neuberger Berman
11. Putnam Investments
12. BB&T
13. Edward Jones
14. Morgan Stanley
15. American Century

Why do these investment firms offer their own funds to their employees without significantly lower fees? First, they do not want to convey to their employees that there are potentially superior investment opportunities outside of the company. For instance, Fidelity might not want to offer an outside fund that could be cheaper and possibly better performing than a comparable Fidelity fund. Additionally, since these plans tend to be very significant in size, reducing investment fees for their own employees could be problematic, since it could potentially increase fees for their retail investors to absorb the cost.

Is there a solution to this dilemma? Yes, there actually is! For the investment firms that are currently offering their proprietary funds to their employees without reduced expenses, these firms should consider offering outside funds to their employees. This could potentially result in lower expenses for the employees. Furthermore, this could remove the target off their backs from ERISA once the DOL regulation becomes effective in April of 2017. Of course, this is a lot easier said than done because it requires investment firms to expose their weak spots in their investment line ups, which could also potentially leak out to their retail investors. Also, a retirement plan was never meant to make the employer money, it is supposed to be a generous benefit for its employees.

With the new DOL regulation coming in April 2017, 2016 has proven that broker dealers and investment advisors are not the only target, but the fund families have also been dealing with quite the roller coaster themselves. And, as retirement investors, we should be glad that the investment business is starting to clean up its act for good and will in return make the industry more beneficial for everyone.

© Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

Active Versus Passive Investment Strategy…Which is Best?

August 10th, 2016

Investors have been debating if it is better to have an active investment strategy or a passive one. On one side, investors claim that being active will allow them to capture the best investment opportunities and optimally manage risk. On the other side, investors claim that going passive will help them secure long-term returns while being able to diversify unnecessary risk. Is one side more accurate than the other? We can’t really say. However, we can say that there is one thing that plays a very significant role in this argument…fees!

How do fees affect investment returns? First, let’s review the three common places fees show up in our investments, particularly mutual funds: Sales-loads, management fees, and 12b-1 fees.

How do these fees affect overall investment performance? Recently, Standard and Poor’s conducted research on how fees affect active managers’ performance against their benchmarks and came out with some noteworthy results. For U.S equity funds,       70% – 92% of active funds in their respective categories underperformed their benchmarks[1] over five years, net of fees. In other words, the vast majority of actively managed U.S equity funds underperformed U.S equity index funds over the course of five years[2] after fees. However, only 30-65% of actively managed fixed-income funds in their categories (excluding long term government, high-yield, and emerging markets) have underperformed their benchmarks after fees. International equity funds have also experienced a smaller percentage of their funds underperforming after fees, ranging from 47%-79% in their categories.

So, what does this mean for those who invest in mutual funds? Although there could be a case made that going active in fixed-income has benefited investors, being passive (investing in market index funds) has been more rewarding to investors over the course of five years. Will this trend continue? We don’t know. However, we do know this: index funds have posted better long-term performance than active funds due to having fewer fees and by mimicking the market, rather than trying to beat it.

© Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

[1] Note that the benchmarks in this study are indexes made by Standard and Poor’s, this writing only mentions returns after fees with retail mutual funds, not institutional mutual funds. Here is the study that we are referencing:

[2] Index funds are not the benchmarks themselves, rather they attempt to mimic them.

How to Get the Most Out of Index Funds

August 1st, 2016

Although index funds can be an excellent choice for retirement investing, many people do not have a complete understanding of how they work. Before we get into the main topic, let’s get some facts straight about what these funds have done historically.

  1. Over the long term, have index funds outperformed the large majority of their active cohorts? Yes!
  2. Are index funds a much cheaper way to invest than actively managed funds? Yes!
  3. So, just because someone is only invested in index funds, have they significantly reduced their portfolio risk? Well… not exactly.

Being able to understand the risk of an index fund has been difficult for some investors, simply because they do not have a complete understanding of what they are invested in. For instance, a study conducted by Natixis, found that 64% of investors believe that index funds will help minimize investment losses. Natixis also found that nearly 7 out of 10 investors believe that index funds “provide the same access to the best investment opportunities in the market.”[1] Is this true? Again…not exactly. So, how can investors reduce investment losses with index funds? The simple answer is through diversification.

Diversification, or what is known to academics as the only free lunch in investing, is simply investing across different asset classes (stocks, bonds, cash, etc.) and across numerous regions around the world (i.e. domestic funds and international funds). As a result, investors reduce risk by having funds that do not all go up and down together. For example, let’s take a $1,000 portfolio that has 50% invested in a stock index fund and 50% invested in a bond index fund. If the stock index fund loses 2% in one year and the bond index fund gains 4%, the portfolio has increased by 1%.

So why doesn’t the portfolio go up 2% if it has a 50/50 split between stocks and bonds? Well… let’s find out. At the end of the year, the $500 that was in the stock fund turned into $490 and the $500 in the bond fund turned into $520. If we add them together, the portfolio is now worth $1,010, a 1% gain. Diversification is meant to be used to reduce risk and stabilize the portfolio. And, if you diversify with index funds, you have found a way reduce risk while saving money!

© 2016 Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

[1] Here is the article about the study:–Active-vs-Passive-/

The People’s Best Interest…The Battle Continues

July 21st, 2016

The official ruling for “fiduciaries,” meaning people who are legally bound in the best interest of retirement investors, will not take effect until April of 2017. However, the Department of Labor (“The DOL”) has been bombarded by lawsuits. This brings us to the recent filing from the National Association for Fixed Annuities (“NAFA”) in June 2016 with regards to how the ruling is defining a “fiduciary,” along with other material in the ruling.

Before we get into what exactly NAFA is complaining about, let’s review how the DOL defines a “fiduciary, which is:

“Any person who exercises any discretionary authority or control respecting the management or disposition of its assets or has any discretionary authority or responsibility in the administration of the plan” as well as “any person who renders investment advice for a fee”. [1]

So, what exactly is NAFA complaining about? According to them, “Congress intended ERISA fiduciary duties to apply only to those who participate in ongoing management of a plan or its assets.” As we mentioned in the previous paragraph, this is not the case. NAFA completely disregarded that fiduciaries are those who render investment advice for a fee. Put it this way, an annuity can play a large role in someone’s retirement, so how would selling annuities to people not be considered rendering investment advice?

Another claim made by NAFA was in regards to how the DOL is allegedly “exceeding its authority by imposing ERISA fiduciary obligation on parties to transactions involving IRAs.” Again, NAFA has it wrong. Although investment advisors to IRAs are considered fiduciaries, those individuals are not subject to the same scrutiny that an ERISA fiduciary would be.

This case is an excellent example of how people who work in the commission-based side of the financial services industry are trying to keep their industry alive. They realize that (as of late April 2017) their ways will no longer work for them in the marketplace, so they are desperate to fight this. Keeping things how they are now can lead to many retirement investors losing billions of their hard earned dollars from commissions and expensive products.

Attached is a link to the article that we used as a reference. And, for those who want to see the DOL’s official response to NAFA, click here! However, just a warning, the official response is about 105 pages long.

© 2016 Castle Rock Investment Company. All rights reserved. Please share your insights with us at or via phone at 303-719-7523

[1] As a note, Castle Rock Investment Company falls under the DOL’s definition of a fiduciary for both ERISA plans and IRAs.

Water Cooler Wisdom: Second Quarter 2016

July 7th, 2016

Is the U.S the only place for long term returns?

Although the United States has experienced one of the best bull markets in terms of duration and returns, investors have been wondering what is next. This past year has not been as invigorating as the prior few years and, on top of that, economists are predicting U.S GDP growth to be at around 1.5% for the next few years. You may have also been hearing from either presidential debates or that “one guy” at the bar that everything is going down the tubes and that we have seen our best days. Are they right? The answer is, we do not know.

What we do know is this, even though the U.S is still considered the safest place for investors, that doesn’t necessarily mean we should only be invested in American securities. Did you know that the rest of world accounts for 95.5% of the human population, nearly 75% of the global GDP, and nearly 60% of the total stock market? On top of that, international securities are not perfectly correlated with the U.S markets so they can be used as a very effective diversification tool for people of all age groups and time horizons. So why don’t people invest outside of the U.S?

There a couple of reasons:

  1. Many people have a bias towards their home country
  2. Many people fear that investing internationally is unbearably risky

To respond to those two reasons, there is nothing necessarily bad about being biased toward your home team but there is also nothing wrong with tapping into other developed countries and even emerging markets such as China and India to name a couple. And for people fearing that going international is overly risky, that is not necessarily true. Although volatility is more prevalent, that does not mean that international securities are a sure way to lose money. In fact, it is the volatility that will allow more buying opportunities which in turn can boost returns for people like you and I.

So despite what happened this past quarter (Brexit, continued negative interest rates in Europe, along with current slow global growth), we should still expand our horizons into the international markets and tap into the opportunities they present.

Attached are a few slides about global markets for the past quarter.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at

Coming April 10, 2017

May 20th, 2016

Did you know that when you pay for investment advice, your adviser might not always have your best interests at heart? Yes, investment advisers are currently legally allowed to sell you products with their own financial gains in mind, even if it means that the products have a high price tag or pay excessive commissions. This is ridiculous, we know, but there is good news for investors on the horizon!

On April 8, 2016, the DOL released its final “Conflict of Interest Rule” to update the definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA). The new rule will protect investors by requiring all who provide retirement investment advice to plans and IRAs to abide by a ‘fiduciary’ standard, which basically means that they must put their clients’ best interests ahead of their own financial gains.

What does this new regulation mean for average investors? It is a big win for them. Castle Rock Investment Company applauds the new regulation since it empowers investors to be given the best advice possible as they make crucial decisions about their retirement savings plans. If you have questions about the new fiduciary regulation, please contact us at or via phone at 303.719.7523.

Water Cooler Wisdom: Third Quarter 2015

October 15th, 2015

During last quarter’s review meeting, I promised a snarky review this quarter, but “good grief” as Charlie Brown would say. The “Grexit” story from July feels insignificant at this point. Greece is now negotiating the “transfer” of over 50,000 migrants and refugees. In fact, the International Organization for Migration reported that more than 35,000 migrants and refugees arrived in Greece during the first week of October alone for a total of almost 435,000 since January.

Perspective: It’s hard to get upset about a reduction in your pension check when you are surrounded by refugees who were forced to flee their homes by armed conflict. A tough year is all relative.

The vast majority of Syrian refugees have fled to neighboring countries, including Turkey (about 1.9 million), Lebanon (about 1.1 million), and Jordan (about 630 thousand). The impact of the global migrant crisis and the response by government leaders is a bigger issue than can be addressed here. Germany is expecting more than 800,000 people to claim asylum this year, which may provide a little relief with their aging demographic issues. Perhaps a silver lining?

But let’s move on to the stories that impacted the bottom line.

China Slowdown

At the beginning of August, we became aware of the ongoing slowdown in China when July’s Purchasing Managers’ Index (“PMI”) fell to 47.8. Just eight days later, the Chinese government unexpectedly devalued the Yuan by 2.0%, surprising markets and sending stock prices tumbling around the world and making us all believers that something was awry in China. When the August PMI came in at 47.3, it reinforced concerns of a global slowdown. That weighed even further on global commodities and markets prompting the Fed to leave rates unchanged yet again. It appears that China is struggling to transition from an investment-driven economy to a consumer one and they may have mistakenly used one of their tools as a sledgehammer.


Remember the days when it seemed as if China was going to either consume or contractually gobble up most of the world’s natural resources? It reminded me of when my father would complain over dinner about the Japanese buying up Manhattan real estate in the 1980s. The purchase of Rockefeller Center really lit him up. In the slides that follow, you’ll see China’s immense consumption of industrial metals in 2014, a dramatic drop in its GDP contribution from investment in 2015, and the current level of commodity prices.


As usual, we recommend a balanced portfolio with a risk profile suitable for each investor’s tolerance. Participants will not be pleased when they receive their third quarter statements but, hopefully, we have all learned to invest wisely, steadily and with discipline. Good grief.

Full Report with Slides

Supreme Court to Fiduciaries: You Must Monitor Your Plans’ Investments!

June 11th, 2015

Screen Shot 2015-06-10 at 10.13.07 PMCastle Rock Investment Company wanted to update you on a recent significant Supreme Court case. Last month, the United States Supreme Court issued a unanimous decision (9-0) in Tibble v. Edison International, ruling that plan sponsors are not only responsible for reviewing retirement plan investments but that they also have a “continuing duty to monitor trust investments and remove imprudent ones.” This decision was in favor of a 401(k) plan participant and overturned a previous ruling of the 9th Circuit of Appeals that was in favor of Edison International.

The ruling declared that the company’s fiduciaries did not uphold their responsibility to monitor three higher-cost retail mutual funds, when “materially equivalent and cheaper institutional shares existed.” Basically, the plan kept higher-cost retail class funds when lower-cost wholesale class versions of those funds were available. This resulted in the participants unnecessarily paying higher fees.

To sum up the case, Justice Stephen Breyer wrote, “ERISA’s fiduciary duty is derived from the common law of trusts, which provides that a trustee has a continuing duty–separate and apart from the duty to exercise prudence in selecting investments at the outset—to monitor, and remove imprudent, trust investments.”

This case has huge implications for plan sponsors, plan fiduciaries, and the entire industry. It could open the door for more claims that fiduciaries failed to properly monitor plan investments. However, the Court did not go into detail on what fiduciaries’ monitoring duties actually entail, so future implications remain somewhat uncertain. What can be gleaned from it is that fiduciaries have the responsibility to periodically monitor their plans’ investments.

If you have any questions or comments on the implications of this case, please feel free to contact Castle Rock Investment Company at 303-725-7086.

Declaration of Independence

February 3rd, 2015

“Can you be more specific?”

Embarrassing, but true: the retirement industry is asking that of the US government.

The definition of a Fiduciary needs to be more specific because of cases where Plan Sponsors are legally charged unreasonable fees for a long time, but the Department of Labor’s interpretation is undesirable to Wall Street. Of course, Wall Street is on the receiving end of these unreasonable fees.

As an investment advisory firm who identifies in writing as a fiduciary to our clients, we uphold the interests of our client above those of any other interest, because we have no other interested parties. The unfortunate reason that other investment advisors will not agree to sign a fiduciary agreement with a client is because they are “promised” to a large company, who profits from a retirement plan through hidden fees.

While the Plan Sponsor is unaware of this other agreement, and often the Investment Advisor is not entirely upfront about this agreement with the Plan Sponsor’s representatives, it comes out in the end through hidden fees and a whole mess of ugly policies.

The sort of game run here should be illegal. Not because the Plan Sponsors are not careful, instead they often are smart and diligent, but because they are simply not protected by the law. Up to this point, the law is unclear. The Independent Advisor they supposedly hire is not, after all, independent according to a stricter definition now proposed by the Department of Labor, led by Phyllis Borzi.

Insist upon a clear definition of an independent advisor so that you know your advice comes for the interest of your retirement plan, and not for the interest of someone else’s quasi-legal activity. Sign the petition at


Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans.

Not that Complicated

February 2nd, 2015
FSI Chairman Adam Antoniades, from Think Advisor

FSI Chairman Adam Antoniades, from ThinkAdvisor

In any fight, there are two sides waving their arms around.

The Financial Services Institute, or FSI, states in response to a recent White House memo that changing the way the delicate fiduciary system is run will ruin everything. The Financial Services Institute, or FSI, is in opposition to redefining the Fiduciary Standard as it is proposed because of various reasons, some more partisan than others. In general, the FSI puts investor advisors first, and the DOL puts workers and clients first.

How could increased or maintained responsibility of advisors lead to greater abuse of power? Among the first things said by the FSI is the atypical “hrrumph, well people outside the industry just don’t understand the complexities of how we deal with these things.” When in reality, it’s not that complicated: you protect the interest of your clients retirement if you are forced to put their interests first under the law, so why not stop dancing around this and just execute the priority anyway?

Demand protection for your retirement you deserve. Sign the petition to here at


Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans.