The Blog was written by guest blogger, Robert Boyd
In Tibble v. Edison International , the beneficiaries of a pension plan sued the plan fiduciaries to recover damages for the alleged losses suffered by the plan from alleged breaches of the defendant’s fiduciary duties, namely, duties to invest prudently and loyalty. The plaintiffs’ were displeased to learn that their pension managers had added a number of retail class mutual funds to the plan that were also available in an institutional-class at a much lower fee. They argued that a fiduciary has a continuing duty, separate and apart from the duty to exercise prudence in selecting investment, to monitor, and remove imprudent, trust investments. The Defendant’s argued that the claim was statute barred under the statute of limitations. The plaintiffs’ initially garnered a favourable ruling in the U.S. Supreme Court and the Court acknowledged that a fiduciary did have a duty to continually monitor investments separate and apart from the duty to select prudent investments. However, after numerous appeals through various levels of the U.S. court system, the case was eventually dismissed in 2016 on the basis of statutory limitations.
The case is a cautionary tale for trustees. On the facts of the case, it is not certain how a Canadian court would rule on the matter. Would a prudent investor purchase an investment that is openly available at a much lower cost? In the author’s opinion, unless there is a justifiable reason to purchase the more expensive retail mutual fund (as much as 4 times as expensive), a fiduciary could be open to liability and at the very least open to criticism by beneficiaries. Although Tibble does differentiate between the duty to select prudent investment and the duty to continually monitor, one may find it difficult to argue that it was in the best interests of the beneficiary to purchase more expensive funds.
The investment environment is constantly changing whether it is the current low yield environment or the trend towards ETFs and low cost investing, a prudent Trustee must constantly oversee the investments and ensure they are structured in the best interests of the beneficiaries. Trustees can mitigate their risk by ensuring they are fully transparent with the beneficiaries and by documenting their investment decisions, particularly when asset managers are retained. Once the investment structure had been implemented, it would behoove a prudent trustee to review and monitor the investment periodically.