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Fidelity Sued By Delta 401(k) Participants Over Alleged Fiduciary Breach
Here's another article, this one with a paragraph explaining the argument behind the brokerage window complaint. That is, by selecting available funds, Fidelity is allegedly exercising discretionary authority which makes it a fiduciary and not merely an order taker (brokerage gofer).
I'm more interested in the brokerage window complaint. What Fidelity is doing is providing access to a retail brokerage account to 401(k) participants.
Since Fidelity is using its own brokerage (and benefiting from that), it has to be careful about self-dealing. But since it's providing access to an off-the-shelf brokerage account competitive with those of Schwab, TDA, etc. that doesn't seem to be a problem.
The complaint also, um, complains about Fidelity not selling the cheapest share classes for some funds. That's a retail account for you. It is true (as stated in the complaint) that Fidelity aggregates the shares of a fund owned by all its customers (an omnibus account). That's what gives it access to institutional share classes (with TF).
I suspect that this part of the complaint will be dismissed. Alternatively, if the ruling is for the participants, then would it also affect non-window retail accounts? After all, there's no fundamental difference in the way these retail accounts function depending on whether they are retirement plan windows or taxable accounts.
Finally, the complaint is worth reading for Table 1 on p. 15. (Just look for something in color). It shows (for 2009) the fees that funds paid to be sold by Fidelity. The median and mode was 35 basis points; some funds paid as much as 55 basis points. I didn't know the fees went that high.
Comments
It also contains a link to the actual filing (hosted by Bloomberg).
http://www.bna.com/fidelity-faces-erisa-n57982072865/
I'm more interested in the brokerage window complaint. What Fidelity is doing is providing access to a retail brokerage account to 401(k) participants.
Since Fidelity is using its own brokerage (and benefiting from that), it has to be careful about self-dealing. But since it's providing access to an off-the-shelf brokerage account competitive with those of Schwab, TDA, etc. that doesn't seem to be a problem.
The complaint also, um, complains about Fidelity not selling the cheapest share classes for some funds. That's a retail account for you. It is true (as stated in the complaint) that Fidelity aggregates the shares of a fund owned by all its customers (an omnibus account). That's what gives it access to institutional share classes (with TF).
I suspect that this part of the complaint will be dismissed. Alternatively, if the ruling is for the participants, then would it also affect non-window retail accounts? After all, there's no fundamental difference in the way these retail accounts function depending on whether they are retirement plan windows or taxable accounts.
Finally, the complaint is worth reading for Table 1 on p. 15. (Just look for something in color). It shows (for 2009) the fees that funds paid to be sold by Fidelity. The median and mode was 35 basis points; some funds paid as much as 55 basis points. I didn't know the fees went that high.