Fidelity Targeted in Fee Suit Over Advice and SDBA Offerings

Fidelity Management Trust Company and Fidelity Investments Institutional Operations Company have been sued by participants of the of the Delta Family-Care Savings Plan regarding excessive fees charged for its advice offering as well as its self-directed brokerage account (SDBA) option. 

The lawsuit is also filed on behalf of all other similarly situated plans. In a statement to PLANADVISER, Fidelity said, “The allegations in this complaint are without merit and we intend to defend against them vigorously.”

According to the complaint, Fidelity contracted with Financial Engines Advisors, a federally registered investment adviser and wholly-owned subsidiary of Financial Engines, Inc., to provide investment advice services to individual participants in the plans that are administered by Fidelity.  Financial Engines acknowledges that it is an Employee Retirement Income Security Act (ERISA) fiduciary with respect to the investment advice program and charges a fee for its services as a percentage of the value of a participant’s account.  

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, but are instead being paid as part of a so-called “pay-to-play” arrangement, or a kickback.  “This ‘pay-to-play’ arrangement wrongfully inflates the price of investment advice services that are critical to the successful management of workers’ retirement savings and violates the fiduciary responsibility and prohibited transaction rules of … ERISA,” the complaint says. 

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.  “Instead, Fidelity acquires share classes that have higher expense ratios and that will pay Fidelity significant amounts in revenue-sharing payments, effectively using the plans’ assets for its own benefit and for its own account. In doing so, Fidelity exercised its discretionary authority over retirement plan assets in a manner designed to increase its compensation at the expense of participants,” the complaint says.  

The participants also accuse Fidelity of providing incomplete, inaccurate, misleading or false information required to be included in the Annual Returns on Form 5500 for the Delta Plan and other plans with respect to the revenue sharing issues in the case.  

The lawsuit asks the U.S. District Court for the District of Massachusetts to order the defendants to make good to the plans the losses resulting from the alleged breaches, in addition to ordering them to disgorge any profits they have made as a result of their actions. 

The complaint in Fleming v. Fidelity Management Trust Company is here.