Advisory Firm Dismissed From Excessive Fee Lawsuit

An investment advisor has successfully managed to disentangle itself from a class-action excess fee litigation suit.

In Bowers v. BB&T Corp. (M.D.N.C., No. 1:15-cv-00732, 4/18/17), Cardinal Investment Advisors LLC argued that the law suit contained “only conclusory assertions with insufficient factual allegations as against it.”

The Suit

The suit was filed in 2015 by several current or former plan participants of the BB&T plan, which has over 37,000 participants with account balances and $3 billion in assets. The suit noted that the BB&T defendants are the named fiduciaries of the plan, as well as plan administrator, and that since 2009, Cardinal Investment Advisors, Inc. has provided fiduciary investment advice to the Compensation Committee regarding plan investments.

The suit alleges that fiduciary responsibilities were breached both in causing the plan to pay BB&T excessive administrative fees and providing imprudent and unreasonably expensive investment options. The suit alleges that the defendants used a BB&T company to provide plan trustee and recordkeeping services without any competitive bidding process and allowed that company to take excessive compensation (via revenue-sharing) from the plan at the expense of plan participants. As other of these type litigations have alleged, this one claims that defendants failed to monitor the amount of revenue sharing that was paid or have BB&T return to the plan such amounts as exceeded a reasonable administrative fee, noting that as plan assets grew from $1.4 billion to more than $2.9 billion, “…BB&T’s asset-based fees also grew enormously, even though its services to the Plan did not change,” and this resulted in “…millions of dollars in excessive recordkeeping fees.”

Additionally, the plaintiffs alleged that defendants provided BB&T funds “…not based on their merits as investments, or because doing so was in the interest of Plan participants, but because they provided significant profits to BB&T, and retained those funds despite their poor performance.” Moreover, the defendants “…provided both proprietary and non-proprietary mutual funds with expense ratios that were far in excess of other options available to the Plan, including separate accounts, collective trusts, lower-cost mutual funds, and lower-cost share classes with the identical investment manager and investment,” according to the suit.

Cardinal’s ‘Sins’?

In considering the arguments regarding Cardinal’s involvement, U.S. District Judge Catherine C. Eagles noted that “while perhaps the plaintiffs have arguably alleged facts to support the claim that Cardinal had some fiduciary responsibilities, there are no facts alleged indicating that it was a fiduciary with respect to the particular activities at issue, some of which occurred before Cardinal even had a relationship with BB&T.” Indeed, she went on to note that the plaintiffs “…do little more than use the word ‘Defendants’ or add the phrase ‘and Cardinal’ to allegations against other defendants. There are no facts alleged that as to the particular breaches of fiduciary duty alleged, Cardinal did any specific thing.”

“[S]ome specific facts tending to indicate a particular defendant is liable are necessary,” she noted, but “here, the plaintiffs have essentially alleged nothing more than that Cardinal gave BB&T general investment advice.”

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