Edward Jones has been sued for a second time this year in a complaint alleging excessive fees and self-dealing in its ERISA 401(k) plan. In addition to those two suits, there have been a large number of other cases targeting financial services companies for their own retirement plans. This lawsuit, Schultz et al v. Edward D. Jones & Co., L.P. et al, alleges the broker-dealer and several employees overseeing the retirement plan breached their fiduciary duties by selecting high-cost mutual funds when identical, lower-cost ones were available, choosing “an unreasonable number” of high-risk investment options, and including a “poorly performing” money market fund in place of a stable value fund.
Plaintiffs also claim Edward Jones engaged in self-dealing through a distribution relationship with several fund companies such as American Funds, Franklin Templeton Investments, Goldman Sachs and BlackRock. Specifically, they allege Edward Jones entered into arrangements with such “product partners” whereby fund companies paid for access to the “captive market” of 401(k) participants by giving revenue-sharing fees to Edward Jones in return for “shelf space” on the retail side of the brokerage business.
According to the Plaintiffs in the proposed class-action, these revenue-sharing arrangements were “contingent upon” Edward Jones offering the partners’ investment options in the roughly $4 billion Edward D. Jones & Co. Profit Sharing and 401(k) Plan. The complaint alleges:
Edward Jones was able to negotiate and secure these acknowledged Revenue Sharing Agreements with its Product Partners in part by guaranteeing them access to the billions of assets under managements in the Plan, where Edward Jones, through its designees, could choose all of the investment options.
These incentivized arrangements clouded fiduciaries’ decision-making and ultimately cost participants millions of dollars in excessive fees, according to Plaintiffs. Edward Jones denies any wrongdoer.
The Edward Jones suits fit within a broader theme of the Plaintiff’s bar suing financial services companies over fiduciary breach in their own 401(k) plans. Firms such as Morgan Stanley, Neuberger Berman, Franklin Templeton, New York Life Insurance Co. and American Century Investments are among those targeted this year. Allegations centering on Edward Jones’ retail distribution relationships and revenue-sharing payments influencing its 401(k) fund selection seem unique among the lot, though.
Litigation against retirement plan sponsors has also been extending to different corners of the defined contribution market. If you need more information relating to this litigation, contact Rebecca Gilliland, a lawyer in our firm’s Consumer Fraud & Commercial Litigation Section, at 800-898-2034 or by email at Rebecca.Gilliland@beasleyallen.com.