Edward Jones has been sued for excessive fees and self-dealing in its 401(k) plan, representing the second such legal ordeal to befall the company this year and coming amid a barrage of litigation targeting financial services companies for their own retirement plans.
The lawsuit, Schultz et al. vs. Edward D. Jones & Co. LP et al., alleges the broker-dealer and several employees overseeing the retirement plan breached their fiduciary duties by selecting high-cost mutual funds when identical, lower-cost ones were available, choosing “an unreasonable number” of high-risk investment options, and including a “poorly performing” money market fund in place of a stable value fund.
Plaintiffs also claim Edward Jones engaged in self-dealing through a distribution relationship with several fund companies such as American Funds, Franklin Templeton Investments, Goldman Sachs and BlackRock.
They allege Edward Jones entered into arrangements with such “product partners” whereby fund companies paid for access to the “captive market” of 401(k) participants by giving revenue-sharing fees to Edward Jones in return for “shelf space” on the retail side of the brokerage business.
These revenue-sharing arrangements, plaintiffs claim, were “contingent upon” Edward Jones offering the partners' investment options in the roughly $4 billion Edward D. Jones & Co. Profit Sharing and 401(k) Plan.
“Edward Jones was able to negotiate and secure these acknowledged revenue sharing agreements with its product partners in part by guaranteeing them access to the billions of assets under managements in the plan, where Edward Jones, through its designees, could choose all of the investment options,” according to the legal complaint, filed Nov. 11 in Missouri district court.
Such arrangements clouded fiduciaries' decision-making and ultimately cost participants millions of dollars in excessive fees, according to plaintiffs, who are seeking class-action status.
John Boul, a spokesman for Edward Jones, said the company will “vigorously defend” against such allegations in court.
"The plan's investment committee takes very seriously its obligation to provide quality investment options for associates to choose from to achieve their individual retirement goals," Mr. Boul said in an e-mailed statement. “The lawsuit's allegations that Edward Jones, its affiliates and plan fiduciaries violated their fiduciary duties or engaged in prohibited transactions related to plan assets are not true."
The “underlying theory of liability” appears to be the same in this case when compared with a separate case filed against Edward Jones in August, according to James Fleckner, chair of the ERISA litigation practice at Goodwin Procter.
Contrary to the first suit, defendants in the new case include James D. Weddle, managing partner of Edward Jones, as well as Brett G. Bayston, an Edward Jones financial adviser who, according to plaintiffs, serves as chairman of the 401(k) investment and education committee.
The most recent complaint was filed by Armstrong Law Firm, based in St. Louis. Bailey Glasser, based in Clayton, Mo., brought the first.
