Waddell & Reed latest active fund manager sued for 401(k) self-dealing

The plaintiff claims the company only offered one unaffiliated investment option during the class period, resulting in excessive fees for participants

Jun 28, 2017 @ 1:57 pm

By Greg Iacurci

Waddell & Reed Financial Inc., which sponsors the Waddell & Reed and Ivy-branded investment funds, has been sued for self-dealing in its own 401(k) plan, joining a string of other asset managers to have been targeted recently for similar allegations.

Plaintiff Stacy Schapker, a participant in Waddell & Reed's roughly $200 million 401(k) plan, claims the firm engaged in "faithless, self-interested conduct" by offering its affiliated investments, which constituted almost the entirety of the plan's fund lineup, thereby causing participants to pay excessive fees.

While less costly and better-performing non-proprietary funds were available, plan fiduciaries selected Waddell & Reed and Ivy funds in order to benefit the company through collection of the investment management fees, according to the complaint, filed in Kansas district court.

During the six-year class period, Waddell & Reed offered one unaffiliated investment option to participants, according to the complaint. The plaintiff claims that, as a result, participants paid at least $7 million in fees to the firm, "which has correspondingly reduced the earnings that would have accrued to participants."

Waddell & Reed did not immediately respond to a request for comment.

401(k) self-dealing lawsuits filed against asset management firms have been proliferating of late. Like Waddell & Reed, most of the lawsuits target firms that focus on active management, which tends to be more expensive than passive management.

Indeed, a primary tactic used in many of these lawsuits is comparing the fees of the respective firm's proprietary investment funds to those offered by Vanguard Group, a firm known for its low-cost index investing.

The Capital Group Companies Inc., BlackRock Inc., JPMorgan Chase & Co., T. Rowe Price Group Inc. and Jackson National Life Insurance Co. are among the firms recently sued.

Within the past month, Putnam Investments and Wells Fargo & Co. successfully defended against respective self-dealing lawsuits.

Voya Financial Inc. also won dismissal of a 401(k) lawsuit alleging it acted out of self-interest through a relationship with managed-account provider Financial Engines.

The Waddell & Reed lawsuit, Schapker v. Waddell & Reed Financial, Inc. et al, was filed June 23.


What do you think?

View comments

Recommended for you

Featured video


What can advisers learn from the first female fighter pilot?

Pressure is pressure. Whether you are taking off from an aircraft carrier or dealing with the unforgiving movements of the market, you need to have a plan. Carey Lohrenz, the world's first female F-14 pilot, has some advice for advisers.

Latest news & opinion

10 least affordable U.S. cities for renters

Based on average salaries and rents, here are the least affordable U.S. cities for renters, according to businessstudent.com.

10 countries where your clients should consider retiring

These countries offer the greatest security for their retirees, according to the 2018 Natixis Global Retirement Index.

10 most affordable U.S. cities for renters

Here are the U.S. cities that are most affordable for renters, according to Business Student.com, which compared the cost of rent to average salaries.

9 best - new - financial adviser jokes

Scroll through for nine new financial adviser laughs.

Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust wants to grow annual revenue from wealth management to 50% from 30% over the next five years.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print