Voya targeted in 401(k) fee suit hinging on relationship with Financial Engines

Voya allegedly took a "substantial portion" of the fee charged for investment advice, even though Financial Engines did the bulk of the work

Sep 14, 2016 @ 1:27 pm

By Greg Iacurci

Voya Financial Inc. has been targeted for self-dealing in a new 401(k) lawsuit centering on the provider's relationship with managed-account provider Financial Engines Inc.

A participant in the Nestle 401(k) Savings Plan, for which Voya serves as record keeper, alleges Voya devised an arrangement with Financial Engines in which it collected excessive fees for investment-advice services, and concealed “the true nature of the arrangement.”

Voya offers an advice program to participants through Voya Retirement Advisors, a service for which it charges a fee, but subcontracts with Financial Engines to “actually provide the investment advice,” according to the proposed class-action lawsuit, Patrico v. Voya Financial, Inc. et al.

The plaintiff claims the defendant doesn't provide “any material services in connection with the advice provided to participants,” but structures its advice service as being provided by Voya “to allow Voya to collect a fee to which it is not entitled.”

Voya allegedly pays Financial Engines a portion of the participant fee, keeping a “substantial portion” for itself.

“In this arrangement between Voya and Financial Engines, there is no advice other than the sub advice, and to call it a sub advisory arrangement is pure fiction designed to allow Voya to substantially and materially increase the fee charged pursuant to this illegal arrangement and to conceal the true nature of the arrangement,” according to the complaint, filed Sept. 9 in the U.S. District Court for the Southern District of New York.

Such behavior constitutes a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974, according to the lawsuit.

Voya spokesman Bill Sutton said the firm supports transparency and “candid communications about plan features and costs so that our clients can make informed decisions.”

The firm denies any wrongdoing and intends to vigorously defend the litigation, Mr. Sutton added.

Duane Thompson, a senior policy analyst at fiduciary consulting firm fi360 Inc., said Voya has a potential defense in a Labor Department advisory opinion from 2001 focused on the plan provider SunAmerica Inc.

That opinion laid out criteria and conditions under which a platform provider (Voya, in this case) is able to receive a fee for investment advice when the advisory function is delegated to an independent third party (Financial Engines), Mr. Thompson said.

The Voya case “has some earmarks of that opinion in the way the advisory program was provided,” but without further detail it's hard to say if Voya was relying on it, according to Mr. Thompson.

Financial Engines was also a central figure in another recent 401(k) excessive-fee lawsuit brought against Fidelity Investments. That legal action, filed in May, alleged Fidelity engaged in a pay-to-play scheme with Financial Engines, whereby the managed-account provider gave an unreasonable part of its advice fee back to Fidelity in the form a kick-back for inclusion on its record-keeping platform.

Financial Engines isn't a defendant in either case.

Several financial services companies have been targeted in 401(k) fee litigation within the past several months, including Edward Jones, Morgan Stanley, Neuberger Berman, Franklin Templeton, New York Life Insurance Co. and American Century Investments.

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