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TDF Provider Sued for Excessive Fees

A pair of investors has filed suit against State Farm Investment Management Corp. (SFMC), charging that the firm charged excessive fees on its LifePath target-date funds.

According to the complaint, SFIMC “does not provide any day-to-day investment services to the LifePath Funds. Nor does it provide any investment guidance or policy direction in connection with daily portfolio management. Nonetheless, it receives approximately half of the net management fees collected from the LifePath funds.”

Suing on behalf of investors, the plaintiffs charge that SFIMC, as investment advisor, has violated Section 36(b) of the Investment Company Act of 1940. They further state that SFIMC does not manage the Master Investment Portfolio or the Master Portfolios, but instead relies on another investment management company, BlackRock Fund Advisors, to do so.

Indeed, the sub-adviser on the fund, Blackrock Inc., “provides virtually all of the investment advisory and portfolio management services,” according to the complaint.

The five LifePath TDFs had around $6.25 billion in assets under management at the end of last year, according to the complaint, which cited the funds’ 2015 annual report. Most of the fees carried a net management fee of 62 to 63 basis points, according to the complaint.

According to an Investment News report, the plaintiffs also allege that SFIMC has benefited from “economies of scale” in that its fees have increased as the market performance has driven up assets under management, but that those benefits were not passed along to the shareholders.

The suit was filed in the U.S. District Court for the Central District of Illinois. The plaintiffs are represented by Berger & Montague, P.C., Schneider Wallace Cottrell Konecky Wotkyns LLP and Hudson Mallaney Shindler & Anderson, P.C.

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