401(k) lawsuit attacks excessive advisory fees paid to UBS

Litigation regarding retirement plan adviser fees is rare, but some believe it will become more prevalent

Sep 26, 2017 @ 2:06 pm

By Greg Iacurci

A company sponsoring a $157 million 401(k) plan has been sued for allowing unreasonably high fees to be charged for plan services, including advisory services provided by UBS.

The lawsuit in question alleges the 401(k) plan sponsor, Novitex Enterprise Solutions Inc., a document-outsourcing company, breached its fiduciary duties by allowing UBS to be "excessively compensated," in addition to permitting unreasonable fees to be charged for record keeping and investment management, according to a lawsuit filed in Connecticut district court.

UBS is not a defendant in the lawsuit.

Litigation targeting excessive retirement-plan fees have proliferated within the past few years. They often target fees paid to 401(k) service providers such as record keepers and mutual-fund companies, but don't typically focus on fees paid to retirement plan advisers.

"It is rare, for now, but something I think you will see with increased frequency," Marcia Wagner, principal at The Wagner Law Group, said.

(More: Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry)

According to the class-action suit, Sandoval v. Novitex Enterprise Solutions, Inc. et al, UBS receives a $125,000 annual base fee for fiduciary investment services.

The company receives "additional compensation from third parties in connection with assets in which clients' advisory accounts are invested," and may also receive compensation as a result of "intercompany profit and servicing agreements," the lawsuit alleges. It claims this subjects UBS to "multiple conflicts of interest."

"UBS has a vested interest in obtaining more compensation from third parties and related entities, which may run counter to the interests of the Plan of choosing the most prudent investment options," according to the suit, filed Sept. 20.

UBS spokesman Peter Stack declined to comment on the lawsuit. Novitex spokeswoman Jill Ransome also declined to comment.

Annual adviser fees for a $150 million 401(k) plan range from $48,000 up to $180,000, with a median of $80,000, according to data from Ann Schleck & Co., which is owned by fiduciary consulting firm Fi360 Inc.

However, fees vary based on services offered — an adviser providing services such as financial wellness, employee meetings and participant support in multiple languages will be on the higher end of the fee spectrum, said Robin Green, head of data and analytics at Fi360.

The lawsuit in question reinforces the need for fiduciary advisers to assist plan sponsors in monitoring fees paid for plan services, including their own, especially in light of the Department of Labor's fiduciary rule, said Duane Thompson, senior policy analyst at Fi360. The rule expanded the number of fiduciary investment advisers to retirement plans as of June 9.

"[Advisers] should be aware of the scope of their own fiduciary duty, where it begins, and where it ends," Mr. Thompson said.

The Novitex lawsuit also furthers a developing trend of excessive-fee lawsuits targeting smaller retirement plans rather than just the multibillion-dollar ones. That's a significant trend for advisers, who tend to work with small- rather than mega-sized plans.

"Smaller plan fiduciaries increasingly are in the crosshairs of ERISA class actions, as illustrated most recently by Novitex," Mr. Thompson said.

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