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.


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