A recordkeeper has been sued for allegedly charging excessive fees as part of its advice arrangement with Financial Engines.
Plaintiff Lisa Patrico, a participant in the Nestle 401(k) Savings Plan, has filed a class action suit against Voya, the recordkeeper for the plan, alleging that Voya devised an arrangement with Financial Engines in which it collected excessive fees for investment advice services and concealed “the true nature of the arrangement.”
The suit, which seeks to go well beyond the participants in the Nestle plan to “every other participant-directed individual account plan for which Voya provides recordkeeping, investment management, or investment advisory services, and for which FE provides investment advice to Plan participants,” claims that in order to get around the prohibitions on advising on its own funds to participants on its recordkeeping platform by offering an advice program through Voya Retirement Advisors LLC, while subcontracting with Financial Engines to provide the investment advice.
Their issue is that Voya Retirement Advisors charges each participant 50 basis points for the first $100,000 of the individual’s account managed by Voya Retirement Advisors, 40 basis points for the next $150,000, and 25 basis points for amounts in excess of $250,000 – and hands over less than that to Financial Engines for the advice.
As the suit notes, “As it turns out, Voya Retirement Advisors does not actually provide any material services in connection with the advice provided to participants,” going on to assert that “the only reason for structuring the advice service as being provided by Voya with sub advisory services by Financial Engines is to allow Voya to collect a fee to which it is not entitled.”
“Effectively charging 25 basis points (0.25%) for performing virtually no services is per se unreasonable,” the suit alleges, arguing that, “even assuming some minimal level of service being provided by Voya, the compensation for that service is plainly unreasonable considering the fact it is Financial Engines that is providing the actual advice and the real value of the service.”
And just in case that argument didn’t go far enough, the plaintiff goes on to suggest that, looking at the situation another way, “Financial Engines, the true service provider, is charging the fees detailed in paragraph 10 above. Financial Engines then pays Voya a percentage of that fee. This arrangement violates ERISA §406(b)(3), which prohibits a plan fiduciary from receiving ‘any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.’”
The plaintiff also claimed that the failure to disclose the fees paid to Financial Engines on the Form 5500 amounted to providing “incomplete, inaccurate, misleading or false information” – and then goes on to suggest that these were “affirmative steps to conceal from Plan participants these practices,” done “perhaps in awareness of the impropriety of these practices.”
The suit also claims that there is “no rational justification for an asset-based fee for the minimal fixed level of service Voya provides in connection with FE’s investment advice program, which is little more than simply making the program available.”
Financial Engines, which is not a party in the Nestle suit, was also named (though not as a party) in another recent excessive fee case involving Northrup Grumman and the compensation arrangements between their recordkeeper (Hewitt Associates) and Financial Engines.
