Ameriprise Facing Revenue-Sharing Lawsuit

Members of Ameriprise Financial Inc.’s 401(k) plan filed a proposed class action on Wednesday claiming they lost $20 million in investments, according to published reports.

They claim the loss is because the financial services company favored its own underperforming subsidiary funds over investment plans with better performance records. The suit alleges that, since 2005, the company had invested in hundreds of millions of dollars in funds managed by its subsidiary RiverSource Investments LLC and Ameriprise Trust Co. (ATC), even though those investment advisers charged higher fees than others.

Law360 reported the members claim that Ameriprise selected those funds even though there were other reasonably-priced investment options because the RiverSource funds allegedly provided its affiliated companies with millions of dollars in fees, some of which ATC received. Ameriprise also selected ATC without any other competitive bids because ATC’s recordkeeping fees benefited Ameriprise when it sold its recordkeeping business to Wachovia in 2006.

According to the complaint, “Defendants failed to engage in a prudent process for the selection of plan investment options. Instead, defendants chose more expensive funds with inferior performance histories in order to generate revenue for RiverSource and ATC and ultimately to benefit Ameriprise.”

The plaintiffs claim that RiverSource had received a one-star rating in 2005 from independent rating service Morningstar Inc., while other funds like the Vanguard Total Stock Market Index Fund had received four stars that year. The article stated that the members also say that more prudent investors, who had become aware that the RiverSource fund was underperforming, had pulled out a significant amount of their investments in 2005 and 2006. They withdrew over $16 billion in assets over those two years, according to the complaint. “RiverSource’s retirement funds also merely invested in other RiverSource mutual funds instead of stocks or money markets," the plaintiffs allege, adding that those funds charged extra fees “for the benefit of ATC and RiverSource."

The suit seeks a court order requiring Ameriprise to compensate for the investment plan’s losses and to disgorge money received through exorbitant fees.

The plaintiffs are represented by Jerome J. Schlichter, whose firm is known for filing seven revenue-sharing lawsuits in 2006. Michael A. Wolff and Mark G. Boyko of Schlichter Bogard & Denton, and Thomas Pahl and Lisa Bachman of Foley & Mansfield PLLP.