Compliance

Fidelity Found Not Liable in Excessive Fee Suit

Participants of the of the Delta Family-Care Savings Plan sued Fidelity entities regarding excessive fees charged for the plan’s advice offering as well as its self-directed brokerage account (SDBA) option.

By Rebecca Moore editors@strategic-i.com | October 02, 2017
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U.S. District Judge Allison D. Burroughs of the U.S. District Court for the District of Massachusetts has granted to Fidelity Management Trust Company and Fidelity Investments Institutional Operations Company a motion to dismiss a lawsuit for failure to state a claim.

The defendants were sued by participants of the of the Delta Family-Care Savings Plan regarding excessive fees charged for the plan’s advice offering as well as its self-directed brokerage account (SDBA) option.

The court basically decided that Delta is the fiduciary responsible for choosing to provide the advice and SDBA offerings to participants, not Fidelity.

The lawsuit alleges that, in order to be included as the investment advice service provider on Fidelity’s platform, Financial Engines agreed to pay—and is paying—Fidelity a significant percentage of the fees it collects from 401(k) plan investors, and these fees are not being paid for any substantial services being provided by Fidelity to Financial Engines or to participants of the plans. In addition, the lawsuit claims that when participants in the plans invest through Fidelity’s SDBA program, BrokerageLink, and the mutual funds selected by the participants offer more than one share class, Fidelity does not always acquire the class of shares with the lowest expense ratio.

The defendants moved to dismiss a claim regarding the SDBA for lack of subject matter jurisdiction, which the court denied. Fidelity argued that by selecting a ticker symbol for the vehicle in which to invest, the plaintiff who alleged injury was responsible for selecting the share class of the vehicle in which to invest. The plaintiffs in the case acknowledge that investors do indeed “choose” the share class, even if only in a “purely mechanical sense,” but argue that the defendants remain liable under the Employee Retirement Income Security Act (ERISA) because BrokerageLink does not always offer investors “a meaningful choice of share class, such that the investor is free to choose the lowest cost share class for which that investor may be qualified.” Burroughs said, “Thus, this is not a case in which ‘no colorable hook exists upon which subject matter jurisdiction can be hung.’”

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