Waddell & Reed Reaches Accord in Proprietary Fund Suit

The parties in another proprietary fund suit have come to terms, both financially and with an agreement for “ongoing prospective relief.”

Under the terms of the Settlement, Waddell & Reed Financial, Inc. will cause its fiduciary insurance carrier (RLI Insurance Company) to pay $4.875 million into a common fund that will be allocated pro rata among participant-Class Members (approximately 4,487 of them) in proportion to their account balances in the plan during the Class Period (between June 23, 2011, and the date of preliminary approval) – after deduction of Court-approved Attorneys’ Fees and Costs, Administrative Expenses, and Class Representative Compensation.

Specifically, under the agreement, the proposed class’s counsel will be able to request up to one-third of the gross settlement amount (typical in these cases – see How Much of the Excessive Fee Settlements Go to Lawyers?), and lead plaintiff Stacy Schapker could get as much as $20,000 for her time and trouble in bringing the case – all of which will be paid from the settlement fund, according to Law360.

The settlement also provides for what was referred to as “ongoing prospective relief” for at least three years in the form of an independent investment advisor to assist in making decisions about managing the plan and its investments.

‘Reap and Realize’

The suit, filed approximately 18 months ago, was brought by Stacy Schapker, a participant in the Waddell & Reed 401(k) plan, alleging that the plan fiduciaries “…acted in their own self-interest rather than in the interests of the 401(k) Plan and its participants in choosing their own proprietary funds for inclusion on the 401(k) Plan menu of investment options and thereby causing WR FINANCIAL and its affiliates to reap and realize the reward of the investment fees paid by the 401(k) Plan.” Moreover, that those funds “In nearly all cases, cost more than comparable available investment options”; performed worse than comparable available investment options”; and in a number of cases “and during a substantial portion of the Class Period, were duplicative in content but not cost – i.e., the same investment product with the same holdings cost more when branded one way (‘Waddell & Reed’) than when branded another way (‘Ivy’).”

The settlement agreement also notes that the Court should appoint Foulston Siefkin LLP as Class Counsel because: (1) it has done significant work identifying, investigating and litigating the claims in this case; (2) it has experience in handling class actions, other complex litigation and ERISA claims; (3) it has extensive knowledge of the applicable law; and (4) it will commit whatever resources are necessary to represent the Class.

In support of the settlement recommendation, and noting that the defendants do not oppose their motion, the plaintiffs acknowledge (as is customary in such cases) that:

  1. it was fairly and honestly negotiated;
  2. it is fair and reasonable and provides adequate relief to the Class;
  3. serious questions of law and fact place the ultimate outcome of the case in doubt; and
  4. the value of an immediate recovery outweighs the possibility of future relief after protracted and expensive litigation.

The case is Schapker v. Waddell & Reed Financial Inc. et al., case number 2:17-cv-02365, in the U.S. District Court for the District of Kansas.

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