Often when a retirement plan participant files suit against a plan sponsor, investment manager or recordkeeper, the advisory firm gets dragged in as well.

This was the case in Bowers vs. BB&T, a lawsuit filed initially in 2015 in the U.S. District Court for the Middle District of North Carolina. The case is not to be confused with a similar lawsuit, Smith vs. BB&T,  filed in the same court right around the same time.

Plaintiffs in the Bowers litigation include participants in the BB&T Corporation 401(k) Savings Plan, and they accuse their employer of “self-dealing and imprudent decisionmaking in the management of its retirement plan.” As the initial and amended complaints lays out, in the opinion of participants, “BB&T does not act in the best interest of its employees and Plan participants. Instead, BB&T treats its 401(k) plan as an opportunity to maximize company profits at the expense of plan participants, by (among other things) charging plan participants excessive fees and then recouping those fees as profits.”

While the advisory firm has now been dismissed from the pool of defendants, the wider case itself will still apparently move forward. Similar to the targets of other “self-dealing suits,” case documents show BB&T is the plan’s sponsor, recordkeeper, custodian, and primary investment manager. Plaintiffs argue the arrangement is rife for conflicts of interest.

With their end-to-end control of plan services, plaintiffs argue that “defendants have loaded the plan with high-cost mutual funds run by BB&T’s wholly-owned subsidiary, Sterling Capital, which is also a participating employer in the plan. Sterling Capital then pays a large portion of the investment management fees it receives back to BB&T, ostensibly for the recordkeeping and custodial services that BB&T provides to the Plan, but in actuality the payments are two to three times greater than the costs BB&T actually incurs to provide those services. The rest is profit.”

Further, BB&T fiduciaries are accused of “mismanagement that … extends beyond their failure to adequately control plan costs. Defendants have also failed to remove poor performing investments from the plan, in breach of their fiduciary duties. For example, the BB&T Large Cap Fund has been a poor performing mutual fund for decades.”

NEXT: Role of the adviser 

The second amended complaint calls outs Cardinal Investment Advisors for its role as consultant and the services it provides to the BB&T compensation committee. According to the complaint, “Cardinal acknowledged its role under the Employee Retirement Income Security Act (ERISA) as a fiduciary to the plan … The Compensation Committee expressly acknowledged and required Cardinal’s role as fiduciary to the plan.”

Case documents show Cardinal provided many of the traditional services to BB&T one would expect. These include: “(i) providing advice and recommendations to the compensation committee regarding investments offered in the Plan; (ii) amending and revising the statement of investment policy for the plan; (iii) monitoring the investment options and the managers of the investment options in the plan for annual reviews, compliance with the statement of investment policy, and adherence to stated style and performance; (iv) the analysis of custodian, manager and investment account search, selection, and transition; (v) preparing reporting of the investment options including the performance of the investments, net of fees; and (vi) conducting plan administrative fee reviews, cost assessments, and fee benchmarking studies.”

Because of its broad advisory role to the plan, essentially all of the accusations of wrongdoing and imprudence leveled against BB&T are also made against Cardinal. For example, here is how the plaintiffs make the accusation that the plan should have been investing in vehicles beyond mutual funds: “Aside from excessive fees compared to other mutual funds that were available to the plan, BB&T defendants, and Cardinal, also failed to adequately investigate (or failed to come to a reasoned decision) offering non-mutual fund alternatives, such as collective trusts and separately managed accounts. Each mutual fund in the plan charged fees greatly in excess of the rates BB&T defendants, and Cardinal, could have obtained for the plan by using these comparable products.”

The advisory firm naturally filed a motion to dismiss, arguing that the “claims against it in the second amended complaint should be dismissed because the complaint contains only conclusory assertions with insufficient factual allegations as against it.” Simply put, the court agreed, as outlined in this document.

“While perhaps the plaintiffs have arguably alleged facts to support the claim that Cardinal had some fiduciary responsibilities, there are no facts alleged indicating that it was a fiduciary with respect to the particular activities at issue, some of which occurred before Cardinal even had a relationship with BB&T,” the decision to dismiss states. “The plaintiffs do little more than use the word ‘defendants’ or add the phrase ‘and Cardinal’ to allegations against other defendants.”

The court concluded “there are no facts alleged that as to the particular breaches of fiduciary duty alleged, Cardinal did any specific thing. While a plaintiff does not have to prove his or her case in the complaint and does not have to offer facts in support of every element he or she will be required to prove at trial, some specific facts tending to indicate a particular defendant is liable are necessary. Here, the plaintiffs have essentially alleged nothing more than that Cardinal gave BB&T general investment advice.”