Edward Jones Sued for Second Time over Alleged Fiduciary Failures

Plaintiffs allege that Edward Jones and its officials breached their fiduciary duties failing to prudently and loyally manage the company's retirement plan investments.

A new proposed class action lawsuit filed against Edward Jones in the U.S. District Court of Missouri accuses the firm of a number of fiduciary breaches, including failing to adequately control investment costs on behalf of participants and favoring the use of funds provided by the investment advisory firm’s revenue-sharing partners.

The accusations match a previous suit filed by employees of Edward Jones, leveling similar claims that the firm favored the use of its business partners’ products within the plan for its own benefit.

Get more!  Sign up for PLANSPONSOR newsletters.

“An employee participating in a 401(k) plan is limited to the investment options selected by the plan’s fiduciaries,” the text of the complaint explains. “Here, the investment committee selected and maintained the investment options of fund companies who participated in revenue sharing, ‘shelf space,’ or other business arrangements with Edward Jones.”

According to plaintiffs, in selecting and maintaining the investment options of these “product partners,” or other companies which returned a benefit to Edward Jones, the defendants “engaged in a form of self-dealing and cost the plan participants millions of dollars.”

Specifically, plaintiffs allege that Edward Jones company and officials breached their fiduciary duties failing to prudently and loyally manage the plan’s investments—by selecting and maintaining the investment options of fund companies with whom Edward Jones maintained revenue sharing and/or other arrangements; selecting and maintaining the higher fee share classes of identical funds; offering a money market account with a high fee and significantly lower performance than a low fee stable value fund; and including and maintaining an unreasonable number of high risk investment options.

“These actions/inactions cost plan participants millions of dollars and run directly counter to the express purpose of ERISA plans, which are designed to help provide funds for participants’ retirement,” plaintiffs allege. Further, plaintiffs suggest that Edward Jones breached its fiduciary duties by “failing to adequately monitor other persons to whom management/administration of plan assets was delegated, despite the fact that Edward Jones knew or should have known that such other fiduciaries were imprudently allowing the plan to select and continue to offer plan participants the higher fee share class options of the identical funds, maintain a poor performing and high fee money market account, and select and maintain risky investment options.”

NEXT: Telling details from the complaint 

The action seeks to recover the losses that plaintiffs say defendants are liable for under ERISA Sections 409 and 502.

According to the text of the complaint, Edward Jones exercised discretionary authority with respect to management and administration of the plan and/or exercised authority or control over the management and disposition of the plan’s assets throughout the class period. The firm, according to plaintiffs, did not seek to offload any of its required fiduciary service to an external provider.

“Instead of delegating fiduciary responsibility for the plan to external service providers, Edward Jones chose to internalize certain vital aspects of this function to the Investment and Administrative Committees,” the complaint states. This is not problematic on its face, participants acknowledge, but they argue the plan committees actually worked with Edward Jones’ interest placed above that of the typical participant.

Plaintiffs go on to suggest that, throughout the proposed class period, Edward Jones “maintained revenue sharing and/or other business arrangements with certain mutual fund companies, both formal and informal, which led to new business partnerships in which Edward Jones granted access to the investment option selection process for the plan in return for consideration in the retail/client-side of their business.”

The argument continues: “Edward Jones, as an investment adviser, has the ability to recommend or not recommend any investment it deems suitable for its retail clients, because there is no fiduciary duty to retail clients at this time … As a result, Edward Jones can and has entered into arrangements with various mutual fund companies [including those on its 401(k) plan investment menu], so that it can receive a portion of the investment fees charged to its clients in return for recommending their partners’ products … However, retail clients are free to pick from a wide variety of investment options. In order to entice these mutual fund companies into these arrangements, Edward Jones used the captive market of their own 401(k) plan, in which the menu of investment options was totally controlled by Edward Jones and its employees appointed to the Investment Committee.”

According to plaintiffs, this would effectively “guarantee their business partners received investment management fees from plan participants, who would have few options but to investment in the mutual funds of Edward Jones’ business partners.”

By this method, plaintiffs claim Edward Jones and Jones Financial “profited by exploiting the captive market of the billions of dollars of assets under management in the plan.”

The full text of the complaint, including more detail about the specific investment options and pricing being challenged, is available here

Retirement Outlook Far Different for Millennial Men and Women

Women are far more worried than men about having enough saved.
 
Millennial men and women view retirement planning and saving significantly differently, a survey by Schwab Retirement Plan Services found. Fifty-four percent of Millennial men are mostly concerned about their health in retirement, and 46% are apprehensive about their savings—but 70% of Millennial women are more concerned with their financial security once they stop working. They also experience far more stress than men with regards to saving for retirement.

The survey of Millennials between the ages of 25 and 35 also discovered that Millennial women are more interested than men in receiving professional help with their retirement savings efforts.

Worries about their health—and finances—in retirement are somewhat surprising, given that 86% of Millennial men and 84% of Millennial women say they are in good health, and that 77% of Millennial men and 79% of Millennial women say they are in good financial shape.

Women evidently think they will need to stay in the workforce longer than men to make up for retirement; 31% of Millennial women think they will still be working at age 70, compared to 22% of Millennial men.

“A variety of social and economic factors impact the way men and women view money, and our survey showed that this is already affecting the youngest generation of workers,” says Catherine Golladay, senior vice president of participant services and administration at Schwab Retirement Plan Services. “It is important for women and men alike to have access to and take advantage of critical resources, such as professional 401(k) advice and financial wellness programs, to help close the gap in retirement savings confidence.”

NEXT: Saving enough?

Asked whether they are saving enough to retire when they want to, 55% of Millennial men and 42% of Millennial women say yes. This divide can be explained, in part, by the uncertainty associated with 401(k) investing. Sixty-one percent of Millennial women and 44% of Millennial men say they do not know what their best 401(k) investment options are. Seventy-five percent of Millennial women and 59% of Millennial men wish they had an easier way to choose their 401(k) investments.

Only 36% of Millennial women say they feel on top of their 401(k) investments, and 42% feel a great deal of stress when making 401(k) investment decisions. By comparison, 55% of Millennial men feel on top of these investments, and 31% feel 401(k) investment-related stress.

Eighty-nine percent of both Millennial men and women say they are relying on themselves for retirement savings, with 72% of men and 74% of women reporting that their 401(k) will be the biggest resource.

More Millennial women than men would like help with specific aspects of retirement planning, like managing current expenses to save more for retirement (45% versus 25%) and figuring out how much they need to save for retirement (65% versus 52%). In addition, Millennial women are more favorable to personalized 401(k) advice than their male counterparts (79% versus 67%).

“Our experience has shown that taking advantage of professional advice can help 401(k) participants save more, be more diversified and stay the course during times of market volatility,” Golladay says. “Millennials have the benefit of time on their side, so the earlier they consult with a professional and formulate a savings plan, the better they can prepare for retirement.”

Koski Research conducted the online survey of 288 Millennial retirement plan participants for Schwab in early June.

 

Get more!  Sign up for PLANSPONSOR newsletters.

«