The 2014 Fiduciary Oversight Review

Transcription

1 The 2014 Fiduciary Oversight Review Unified Trust Company, N.A Alexandria Drive, Suite 100 Lexington, KY (866) (fax)

2 We devote our efforts to achieving a single goal: Retirement Success. Who we are NATIONALLY CHARTERED TRUST COMPANY. Unified Trust is a national trust company specializing in the management of qualified retirement plans, regulated by the Treasury Department and audited by the Office of the Comptroller of the Currency. ONE OF THE NATION S ONLY DISCRETIONARY TRUSTEES. As a nationally recognized expert in the management of fiduciary risk, Unified Trust is one of a select few institutional trustees nationwide that accepts responsibility as an active, discretionary trustee and named fiduciary, mostly absolving the plan sponsor of their fiduciary liability burden. what we do INDEPENDENT AND OBJECTIVE RETIREMENT PLAN PLATFORM. An open architecture environment with fiduciary consulting through elite, independent advisors, offering advanced fiduciary monitoring, full fee disclosure, and 100% revenue neutrality. what makes us better WE MAKE SUCCESS THE STANDARD. Unified Trust does more to promote successful retirement outcomes for participants and plan sponsors than anyone in the industry. Our history of innovation ensures that our clients will always be on the forefront of high level retirement plan services. A PROFESSIONAL FIDUCIARY. Unified Trust s services are unique in that they are both comprehensive covering all aspects of governing a qualified plan and delivered through an institutional process. As a fee-only independent fiduciary, our loyalty to the participant is absolute. We devote our efforts to achieving a single goal: Retirement Success. It is our focal point to provide a structure that makes it not only possible, but likely, that participants will achieve their retirement goals. FOCUS ON SUCCESS. Retirement plan clients and participants can succeed. With participant success as the chief focal point, innovation for programs that drive positive outcomes are always in mind. 2 Loyalty, care, and prudence have been Unified Trust s core principles since 1985 when Gregory Kasten, a board certified anesthesiologist, founded the trust company. Not all that different from medicine, Unified Trust has since committed itself to developing the regimen and tools necessary to help participants realize a successful retirement outcome.

3 Table of Contents 4 Executive Summary 5 The Unified Fiduciary Monitoring Index 5 Prudently Selecting Retirement Plan Investments 6 Ten Years Of Quality Asset Selection 8 Fiduciary Monitoring: The 25/40 Formula 9 The Trust Investment Committee: Added Value Through Expertise 10 Relentless Fiduciary Oversight 11 Methodology And Background 11 Describing Risk In A Way That Makes Sense 13 A Formalized Fiduciary Process 14 A National Discretionary Trustee 14 Discretionary Versus Directed Trustee 14 The True Benefit Of A Discretionary Trustee Certainty Of Execution 15 Certified By The Centre For Fiduciary Excellence (CEFEX ) 16 Disclosures 3

4 Executive Summary When monitoring plan investments, fiduciaries are confronted with an overwhelming amount of information and are often faced with the burden of interpreting conflicting statistics. In order to provide our clients with a systematic method to help select, monitor, and replace plan investments, Unified Trust Company developed a scoring system called the Unified Fiduciary Monitoring Index (UFMI ) in The goal of the UFMI is to help us predict which mutual fund managers are more likely to outperform their investment category peers. The UFMI is a proprietary index based upon our own research, analysis, and 30+ years of academic research. The index serves as a bright line test and simplifies the initial fund selection and on-going monitoring decisions faced by plan fiduciaries. Since its introduction in 2000, we have over 450,000 rolling fund-years of performance data, where the performance of a fund is compared to its investment category average one year after ranking to determine the predictive benefit of the UFMI. The index has produced consistent results, where funds with better scores tend to outperform those with worse rankings. From December 31, 2000 to December 31, 2013, on a prospective basis, we find that equity funds with UFMI scores in the top 10% of peers (UFMI scores from 1 to 10) outperformed their respective category averages by +0.75% and fixed income funds outperformed their respective category averages by +0.45%. This is visually depicted in Figure 1. In addition, we discover that equity funds with UFMI scores in the top 10% of their peers have, on average, a 58% probability of outperforming their respective category average over the following year, while fixed income funds with UFMI scores in the top 10% of their peers have a 67% probability of outperforming their respective category average over the following year. FIGURE 1. OUTPERFORMANCE VS. CATEGORY AVERAGE ONE YEAR FOLLOWING RANKING: % 4 Average Annual Outperformance 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 0.75% Top 10% of Equity Funds 0.45% Top 10% of Fixed Income Funds While the UFMI is a proven system for selecting funds, it is just the first cut of our investment process. Unified Trust has a Trust Investment Committee (TIC) dedicated to ensuring our investment process is consistent with the highest levels of fiduciary compliance. Unified Trust s fiduciary process has been certified independently by the Centre for Fiduciary Excellence (CEFEX ).

5 The Unified Fiduciary Monitoring Index Prudently Selecting Retirement Plan Investments The Unified Fiduciary Monitoring Index is a composite percentile ranking of the over 25,000 mutual funds Unified Trust receives data for each quarter as compared to their investment category or peer group. When selecting investment managers ( funds ), Unified Trust relies on the UFMI as the primary criterion and a range of secondary criteria as determined by the Trust Investment Committee. The UFMI is intended to be a bright line test, pass or fail, whereas the secondary criteria are both quantitative and qualitative in nature. The secondary attributes, however, are only considered after the fund has passed with an acceptable UFMI score. A list of some of the secondary criteria considered by Unified Trust is included in Table 1. Unified Trust also uses a variety of other tools and metrics to determine whether or not to invest in the fund, such as Morningstar and Fiduciary Analytics. Funds receive UFMI scores that range between 1 and 100. A fund that receives a score of 1 would be considered to be in the top 1% of its peers, while a fund receiving a score of 10 would be considered to be in the top 10%. Scores are specific to investment categories so only Large Blend funds are scored against other Large Blend funds and only Intermediate-term Bond funds are scored against other Intermediate-term Bond funds and so on. The calculation looks at more than just relative investment performance and incorporates numerous quantitative factors that have been found to be predictive in prior academic studies. The UFMI methodology improves on a number of popular rating systems such as Lipper or Morningstar. For example, despite the fact that research indicates characteristics such as fund expense and portfolio turnover are relevant when assessing the likelihood a mutual fund will outperform its peers in the following year, most popular mutual fund ranking systems are based primarily on risk-adjusted performance. TABLE 1. SECONDARY CRITERIA CONSIDERED DURING FUND SELECTION Supplemental Criteria Fund Asset Size Downside Probability UFMI Score Historical Consistency Total Expense Ratio Investment Style Consistency DNRisk Index SM Performance Attribution Analysis Overall Fund Longevity 95 th Percentile Worst Case Manager Tenure Multi Manager Approach Overall Sortino Score Analysis Management Legal History 99 th Percentile Worst Case Downside Deviation Risk Performance Relative To Risk Revenue Sharing Fees 75 th Percentile Worst Case 5

6 Ten Years of Quality Asset Selection Since 2000, the UFMI has exhibited on a prospective basis that equity and fixed income mutual funds with better UFMI scores persistently outperformed their respective category average over the twelve months following their ranking. During the reported period, equity funds scoring in the top 10% of their peer group outperformed the bottom 10% by 1.36%. Fixed income funds in the top 10% outperformed their peers in the bottom 10% by 1.10%. Results across the various UFMI groups are included in Table 2. TABLE 2. UFMI OUTPERFORMANCE SPREADS Fund Group Equity Group Fixed Income Group UFMI Top 10% vs. Bottom 10% 1.36% 1.10% UFMI Top 20% vs. Bottom 20% 1.32% 1.00% UFMI Top 30% vs. Bottom 30% 1.11% 0.86% UFMI Top 40% vs. Bottom 40% 0.94% 0.72% UFMI Top 50% vs. Bottom 50% 0.78% 0.59% Additionally, the probability that a fund in the top 10% of its peers would outperform its category average over the following year has been approximately 58% for equities and 67% for fixed income. This means that the top 10% of funds scored on the UFMI system outperformed their peers approximately 63% of the time, on average. During the period of , funds scoring in top 40% were all more likely to outperform their respective category average the year following their ranking. FIGURE 2. UFMI MAGNITUDE OF OUTPERFORMANCE BY DECILE GROUP: % 6 Outperformance vs. Category Average One Year Following Ranking 0.60% 0.40% 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% Unified Fiduciary Monitoring Index Deciles

7 Ten Years of Quality Asset Selection FIGURE 3. UFMI PROBABILITY OF OUTPERFORMANCE BY DECILE GROUP: % Probability of Outperforming the Category Average One Year Following Ranking 70% 60% 50% 40% 30% 20% 10% 0% Unified Fiduciary Monitoring Index Deciles In summary, our proprietary quantitative screening tool, the UFMI is a ranking system for mutual funds and money managers, the purpose of which is to attempt to predict which managers are most likely to outperform peers in the coming year. We do not guarantee performance or claim we can predict it; we simply recognize the importance of beginning a search for the best investments with an objective screening process. We therefore rank funds and managers every quarter and use the rankings as a screening tool. The UFMI is merely the first among many factors we consider, but it s an important tool with a well-documented history. 7

8 Fiduciary Monitoring: The 25/40 Formula The UFMI has historically indicated that those funds scoring in the top 25% typically outperform their peers scoring in the bottom 75%, and tend to do so persistently for multiple quarters. Accordingly, the 25th percentile serves as a logical threshold or bright line test for initial qualification. This simply means that in order to be included in a client s portfolio, a fund must have a UFMI score between 1 and 25. Similarly, once an asset has been selected the question then becomes, how long should an investment be included in the fund menu before it is replaced? The UFMI data show that when mutual funds fall below a score of 40 for two consecutive quarters, meaning , they do not tend to return to the top 40% quickly. That said, a UFMI score of 40 is the threshold for the on-going monitoring and replacement of assets chosen for client accounts. If a fund falls below 40 for two consecutive quarters, it is replaced with a fund scoring 25 or better. Historically, funds with UFMI scores between 1-25 ( the Selection Group ) have outperformed funds with UFMI scores between ( the Replacement Group ) by +0.92% for equities and +0.64% for fixed income funds. FIGURE 4. PERFORMANCE OF SELECTION GROUP VS. REPLACEMENT GROUP: % Outperformance versus Category Average by Group 0.50% 0.25% 0.00% -0.25% -0.50% Selection Group (UFMI Score from 1 to 25) Replacement Group (UFMI Score from ) 8 Based upon this data, one useful decision tree is to set an initial screen of 25 or better to select a fund or manager and apply an ongoing retention score of 40 or better. We call this the 25/40 Formula.

9 The Trust Investment Committee: Added Value Through Expertise In addition to examining the benefit of the UFMI, Unified Trust also conducts studies seeking to determine the impact of its Trust Investment Committee s fiduciary monitoring and due diligence process on the investments held for all ERISA qualified plan clients. Performance was determined based on the mutual fund holdings for all Unified Trust ERISA assets at the beginning of the quarter. The performance of each fund is compared against both that fund s category average for the following year as well as the performance of that fund s UFMI investment category group decile. The aggregate results are dollar weighted across all assets to show the total impact for all of our qualified plan clients. As you can see in Figure 5, since the fourth quarter of 2002 through the last quarter of 2013, the funds held by our clients as a group have outperformed their peers, defined as their respective Morningstar category averages, by +0.94% on a geometric annualized basis Much of this historical success is attributable, not just to the UFMI, but to Unified Trust s Trust Investment Committee. Unified Trust s ERISA assets would have outperformed the category average +0.47% based on the UFMI alone; however, the composite outperformance was +0.97%. This suggests that +0.47% of the outperformance is derived from the Trust Investment Committee s thorough review of the assets after passing the initial using the UFMI as a first cut. FIGURE 5. UNIFIED TRUST COMPANY ERISA ASSETS VS. CATEGORY AVERAGE AND UFMI DECILE: Q TO Q42013 Outperformance One Year Following Ranking 4.50% 3.50% 2.50% 1.50% 0.50% -0.50% -1.50% -2.50% -3.50% -4.50% Q402 Q303 Q204 Q105 Q405 Q306 Q207 Q108 Q408 Q309 Q210 Q111 Q411 Q312 Ranking Period Value of UFMI Value of TIC Total 9

10 Ten Years of Quality Asset Selection By hiring Unified Trust as a professional fiduciary and discretionary trustee, our clients are ensured that every quarter year in and year out our fiduciary process will be executed without fail. Since 2002, nearly 95% of Unified Trust s aggregate ERISA assets have been invested in mutual funds with UFMI scores better than 40 more than 80% of which were invested in funds that scored in the top 25% of their peers. Furthermore, over the same period we have seen that the asset weighted-average UFMI score of Unified Trust s ERISA assets has been consistently less than 25 with an average of 13. This constant oversight, review, and replacement of assets when prudent ensure that our clients are always receiving quality investment options. FIGURE 6. ROLLING WEIGHTED AVERAGE UFMI SCORE OF ERISA ASSETS: Q TO Q Worst Best Weighted Average UFMI Score Q4 02 Q3 03 Q2 04 Q1 05 Q4 05 Q3 06 Q2 07 Q1 08 Q4 08 Q3 09 Q2 10 Q1 11 Q4 11 Q3 12 Q2 13 Quarter FIGURE 7. WEIGHTED HISTORICAL DISTRIBUTION OF UFMI SCORES: Q to Q Percentage of Total ERISA Assets 70% 60% 50% 40% 30% 20% 10% 0% 55% 23% 11% 6% 3% 1% 0% 0% 0% 0% UFMI Decile Best Worst

11 Methodology and Background Describing Risk in a Way That Makes Sense There are drawbacks to using standard deviation as a measure of risk: it interprets any difference from the average above or below as bad, and this is not how most investors feel about returns. Few investors would view the prospect of their portfolios growing in value as risky; most only worry about the downside their returns being below average. Downside risk, as the name implies, measures risk below a certain return. For example, if an investor is worried only about losing money, that return would be 0%, and only negative returns would be viewed as risky. If an investor needs to earn a 7% annual return in order to meet certain funding goals, any return under 7% would be considered risky. This target return is what s known as the Minimum Acceptable Return (MAR) and is used as the target return for calculating downside risk. FIGURE 8. BAD VOLATILITY VS. GOOD VOLATILITY Bad Volatility Bad Volatility Unlike standard deviation, investors can customize the downside risk calculation using their own target MAR. Institutional investors often view investment risk as the possibility of underperforming the benchmark, whereas retail investors tend to regard risk in absolute terms as the possibility of loss (e.g., against the risk-free rate). Downside risk calculations allow the user to incorporate both views when quantifying the risk of an investment or investing strategy. Because standard deviation can only measure how returns are distributed around the mean return, it cannot be customized for different types of investors. The risk of an investment can change considerably depending on the MAR. For example, if one investor needs an investment that returns no less than 4% annually, any amount less than this will result in the underfunding of the pension plan. Another investor wants a good return but doesn t want to incur losses. By increasing the MAR from zero to 4%, a larger amount of the return distribution violates the MAR. This additional area the amount between zero and 4% is considered risk for the first investor, but not for the second. 11 Risk is one of those subjects where there is widespread agreement on the surface, but little agreement on the details. Many plan sponsors and investors agree that they do not like risk, but they often disagree on just how much risk is involved in a particular investment. Downside risk can accommodate this diversity in risk perception. Downside risk measures risk below some point.

12 Methodology and Background If an investor is worried only about losing money, the possibility of negative returns would be viewed as risky. If an investor needs to earn x% return to meet a goal, any return under x% would be unacceptable (risky). This represents the MAR floor that is tolerable for this investor. The key difference between standard deviation and MAR is as follows: Standard deviation interprets any difference from the average return, above or below, as bad. Most investors views of risk are toward the downside only. That is, investors only worry about their returns being below some point. In addition to being a more intuitive definition of risk, the major advantage to downside risk over standard deviation is that it accommodates different views of risk. Another limitation to standard deviation as a measurement of investment risk lies with the underlying data. Most investors are familiar with concept of the normal distribution. This nicely proportioned bell-shaped curve is what underlies all the assumptions about standard deviation. If the underlying data is not normally distributed, the standard deviation is likely to give misleading results. A number of studies have demonstrated that investment returns are not normally distributed. If the returns are not normally distributed, investors using standard deviation are likely to reach the wrong conclusions. A further enhancement to the downside risk calculation is by utilizing bootstrapping. FIGURE 9. EXAMPLE OF BOOTSTRAPPING 12 Bootstrapping is a technique that tries to increase the explanatory power of a limited amount of data by recombining the historical data. This process can be repeated thousands of times, resulting in a distribution with many observations instead of just a few. An underlying assumption to bootstrapping is that the data is independent. Most investors believe that the return from one period has something to do with that from another period, but the two values have little correlation. Studies suggest that sequential returns are not entirely independent, but the autocorrelations between a return and that of a return two periods later is approximately zero. One must weigh the additional explanatory power gained by the increased number of observations against the error introduced because returns are not entirely independent. In spite of its possible drawbacks, we prefer to bootstrap data, because we believe that it is able to capture returns that could have happened but never did happen, therefore providing a more complete picture of the nature of uncertainty.

13 Methodology and Background A Formalized Fiduciary Process As the 401(k) and general investment marketplace matures, and as consultants have more experience with the fiduciary rules and responsibilities, the expectations of the performance of fiduciaries including committee members is increasing. It is no longer acceptable to do business as usual. Investment fiduciaries, including committee members, must understand the past, present and future of investment performance along with the roles those time periods play in the investment monitoring process. High expectations demand a sound fiduciary process. The purpose of maintaining fiduciary best practices are to establish evidence that the fiduciary is following a prudent investment process and to improve the investment outcomes of the plan participants while minimizing the risk to the plan sponsor. Fiduciaries have the most important, most risky, but yet most misunderstood role in the investment process of ERISA. In order to prudently fulfill its duties, ERISA permits a fiduciary to seek assistance from outside professionals such as investment advisors, consultants and money managers if the fiduciary lacks the requisite knowledge. In addition, the fiduciary must review the plan s trust documents to ascertain if the document permits the delegation of investment responsibilities. The fundamental duty of the fiduciary is to manage investment decisions for the exclusive benefit of the client, retirement plan participant, and/or trust beneficiary. The fiduciary should take reasonable steps to protect the portfolio from losses, and to avoid misunderstanding when hiring outside professionals. Any fiduciary that attempts to manage the plan investments without a well-defined process will likely fail. Both case law and regulatory opinion letters reinforce this important concept. Unified Trust believes that investment outcomes are improved and potential liability can be reduced by utilizing our prudent fiduciary process. Building upon concepts issued by the Foundation for Fiduciary Studies, Unified Trust manages investment decisions through a detailed process based upon a sound on-going process. The Fiduciary Monitoring Cycle is depicted visually in Figure 10. FIGURE 10. THE FIDUCIARY MONITORING CYCLE Written Process Proper Action Regular Monitoring 13 Documentation

14 A National Discretionary Trustee Unified Trust is a nationally chartered trust company regulated and examined by the Department of the Treasury, through the Office of the Comptroller of the Currency (OCC). We are one of the only fully discretionary trustees in the country servicing qualified retirement plan clients. We take full discretion and liability for the assets of the plans we serve. There is a complete allocation of responsibility, and therefore liability, with respect to the tasks we accept the safekeeping and management of plan assets. This does not mean that the plan sponsor is no longer a fiduciary the sponsor still must select and monitor us as trustee, and this task is a fiduciary function. But it is correct to say that the full responsibility for plan assets has been delegated (technically, the legal term that applies in this case is allocated ) to us as discretionary trustee. Discretionary Versus Directed Trustee A discretionary trustee has the final authority, or discretion, to make investment selections and replace investments if necessary. The discretionary trustee must always follow the ERISA prudent expert rules and must maintain well-documented records of its action. Unlike discretionary trustees, directed corporate trustees serve in a limited cofiduciary role. They provide a custodial function to hold plan assets. They do not make discretionary investment decisions for the plan. In some cases, directed trustees may function in a carefully crafted limited co-fiduciary capacity. They may provide nondiscretionary investment recommendations and ongoing data to the plan sponsor in a co-fiduciary role. However, in such limited-capacity co-fiduciary cases, the final discretionary authority and ultimate fiduciary risk belong to the plan sponsor. Unless the co-fiduciary has discretion over the selection and replacement of plan investments, the fiduciary risk belongs to the plan sponsor, who must make the final decisions. The True Benefit of a Discretionary Trustee Certainty of Execution Trustees are required to follow a prudent process for managing plan assets, and the requirements of prudence can be daunting to a company for whom the 401(k) is at most a sideline to the running of the business. The real value of hiring a discretionary trustee has nothing to do with liability. Reducing litigation risk is merely a side effect of hiring us. The real value is in the certainty of execution of a prudent process. 14

15 Unified Trust Company Discretionary Trustee Comparison of Fiduciary Plan Services Unified Trust Discretionary Trustee Erisa 3(38) Manager Erisa 3(21) Fiduciary Directed Trustee Fiduciary Warranty Due Diligence Support Named Plan Fiduciary Under ERISA 402(a)? Generally No Allocated or Delegated Duties Allocated Delegated Delegated Delegated Delegated Delegated Has Exclusive Authority to Manage and Control the Assets of the Plan Under ERISA 403(a)? Acknowledges Fiduciary Status in Writing Broad or Narrow Fiduciary Responsibility? Broad Narrow Narrow N/A N/A N/A Provides Participant Direction Choices Under ERISA 404(c) Responsible for ERISA 404(c) Compliance and Notices Has Full Responsibility for Selecting Plan Investments Has Full Responsibility for Monitoring Plan Investments Has Full Responsibility for Replacing Plan Investments Sometimes Able to Provide Personalized Goal Management Solution Responsible for ERISA 404(a) Prudent Man Rule Responsible for Prudent Management of Participant Model Portfolios Sometimes Responsible for Determining if Plan Fees are Reasonable for Their Services Oversight Structure Allows Plan to be Eligible for Limited Scope Audit Plan Oversight-Missing Contributions and Jurisdiction of US Courts Able to Complete a full fi360 SAFE TM Fiduciary Assessment for the Plan Sometimes Duty to Avoid Prohibited Transactions and Also Monitor Full Plan for Them Responsible for ACA, EACA, and QACA Participant Notices Sometimes Preperation of Signature Ready Participant Loans, Hardship Withdrawals and QDROs Approval of Participant Loans, Hardship Withdrawals, and QDROs Sometimes CEFEX Certified for Fiduciary Best Practices Generally No Generally No SAFE TM (Self Assessment of Fiduciary Excellence) is a registered mark of fi360. This is not an offer to sell or the solicitation of an offer to buy any investment product. Before investing, it is important that you understand that investment products (including securities and mutual funds) and insurance products involve risk and may lose value. They are not FDIC insured or insured by any Federal government agency and are not deposits of, guaranteed or insured by Unified Trust. Unified Trust does not provide tax, accounting or legal advice, and information presented about tax considerations is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. 15

16 Certified by the Centre for Fiduciary Excellence (CEFEX ) On October 11, 2006 CEFEX, Centre for Fiduciary Excellence, LLC, certified Unified Trust Company, N.A. to the Fiduciary Practices for Investment Advisors. Unified Trust Company was among the first Investment Advisors globally, to successfully complete the independent certification process. Unified Trust Company was the first trustee certified in the United States. Unified Trust Company was certified for its discretionary investment services provided in a trust environment for trustee-directed and participantdirected DC plans and individual investors. The annual certification process involves a detailed assessment of operational data and procedures, followed by on-site interviews with key personnel. Unified Trust is registered at where its certificate can also be viewed. CEFEX is an independent assessment and certification organization. CEFEX works closely with regulators, self-regulators, the investment community and the fiduciary industry to provide comprehensive assessments as measures of risk and trustworthiness of Investment Fiduciaries. As a certifying organization, CEFEX provides an independent recognition of a fiduciary s conformity to all Fiduciary Practices. It implies that a fiduciary can demonstrate adherence to the industry s best practices, and is positioned to earn the public s trust. This registration serves investors who require assurance that their investments are being managed according to commonly accepted best practices. CEFEX has proposed a set of Practices recommended by the asset management industry to reduce fiduciary risk. CEFEX uses a consultative approach to develop and evolve the Practices, similar to that used by international standards development organizations. The Fiduciary Practices describe how an Investment Advisor assumes the responsibility for managing a client s overall investment strategy: deciding on the client s asset allocation, developing the client s investment strategy, implementing the strategy with appropriate Investment Managers, and monitoring the strategy on an ongoing basis. 16 The Fiduciary Practices are substantiated by legislation, case law and regulatory opinion letters from the Employee Retirement Income Security Act (ERISA), Uniform Prudent Investor Act (UPIA) and the Uniform Management of Public Employee Retirement Systems Act (MPERS) in the U.S. A full copy of the Fiduciary Practices is available at www. fi360.com and further information about Unified Trust Company can be found at com.

17 Disclosures 1. Past performance is no guarantee of future results. 2. This report contains viewpoints and opinions on the economy, the markets, and specific securities. From time to time, certain of them may differ from each other. Additionally, Unified Trust Company, N.A. may publish or otherwise express other viewpoints or opinions that may be different from certain of the viewpoints or opinions expressed in these materials. 3. All expressions of opinion by Unified Trust are subject to change without notice. No portion of this report may be copied in any manner or form, nor redistributed, without the prior written consent of Unified Trust. All charts and research have been compiled from publicly available, proprietary and/or licensed data. 4. Principal value and investment returns will fluctuate with changes in market conditions so that an investor s shares when redeemed may be worth more or less than their original cost. 5. Individual mutual fund or collective fund performance data throughout the document are net of underlying fund expense ratios but gross of add-on expenses such as Trustee fees, TPA fees, or advisory fees. The performance histories reported are simply dollar-weighted historical returns for the proposed funds and do not reflect the effects of rebalancing or fund replacements. Any past performance information for the proposed investment selections is not indicative of future returns but is merely a snapshot of historical performance. 6. Fund Comparison Disclosures: Performance numbers for all funds are net of all expenses of the underlying funds but gross of any added expenses of the plan such as investment advisory or Trustee fees. Past performance is no guarantee of future results and none of the funds are FDIC insured. A fund may be worth more or less when sold. 7. Although the information contained herein is obtained from sources believed to be reliable, its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not an offer, solicitation or recommendation that any particular investor should purchase or sell any particular security. 8. Diversification and asset allocation do not eliminate the risk of investment losses. 9. International investments are subject to additional risks, such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks. Small-cap stocks have historically been more volatile than the stocks of larger, more established companies. 10. A bond fund s Net Asset Value will fluctuate with the price of the underlying bonds and portfolio turnover activity. Return of principal is not guaranteed. Bond fund shares are subject to increased loss of principal during periods of increasing interest rates. 11. Always read the prospectus before investing. 12. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Unified Trust recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager , Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 17

18 18 your goals are our goals. Unified Trust Company, N.A Alexandria Drive, Suite 100, Lexington, KY (877) (859) fax