Ameriprise sued by employees over excessive 401(k) costs Article added by Roccy DeFrancesco on February 4, 2013
Roccy Defrancesco

Roccy DeFrancesco

MI

Joined: May 24, 2006

This is so crazy, it couldn’t be made up.

Ameriprise is one of my least favorite financial services firms in the industry. It’s the poster child for the types of firms that drove me to write a book about bad advisors and how to avoid them.

A story about Ameriprise employees suing their own firm because their own proprietary mutual funds have underperformed the market and the fact that to even offer them in a 401(k) plan violates the trustee’s fiduciary duties is just classic. Throw in an additional count in the complaint alleging that the TPA who administered the plan charged excessive fees and paid “kickbacks" to Ameriprise and it says it all.

Let me try to summarize the lawsuit:
  • Ameriprise employees participate in a 401(k) plan through Ameriprise.

  • In the 401(k) plan, Ameriprise has many of its own “proprietary” funds.

  • The lawsuit alleges that by using these funds, Ameriprise created $20 million in excess costs that wouldn’t have been there if more prudent investments were offered in the plan.

  • The suit alleges that the plan trustees violated their fiduciary duty by having Ameriprise’s proprietary funds in the plans. This is based on the following:
    • The charged fees are in excess of the industry average. It is also alleged that Ameriprise had two levels of fees (ones that are not charged at other firms like Fidelity and T. Rowe Price).

    • The funds had little or no track record (it is alleged that some funds were new and Ameriprise used their employees' 401(k)s to bolster the assets in these funds).

    • The funds underperformed and didn’t do as well as other similar funds in their sector and received poor ratings from Morningstar.
MyPlanIQ rated the risk-adjusted returns of the Ameriprise Plan’s investments in the bottom 2 percent of defined contribution plans with respect to fund quality.
Here is the actual Order from the Court wherein the Court denies Ameriprise’s motion to dismiss. I went through the Order and highlighted the areas I thought were important.

Like I said, you can’t make this stuff up. Ameriprise touts itself as an elite financial planning firm that clients should hire to grow their wealth. However, their own employees sued them for breach of fiduciary duty by having Ameriprise’s over-expensive and underperforming mutual funds inside their qualified plan.

Future Ameriprise lawsuits?

I find this lawsuit fascinating on multiple levels. If Ameriprise’s own employees are suing the company because their funds underperform and have excessive fees, why shouldn’t every Ameriprise client who has a 401(k) or IRA with the firm also sue Ameriprise?

What about employees of XYZ company suing their employer/plan fiduciary if they are offering Ameriprise funds in their 401(k)/profit sharing plans?

This makes me wish I didn’t give up practicing law full time. If I hadn’t, I’d be trolling for clients to create another class-action lawsuit against Ameriprise.

What can we all learn from this?

Don’t work with a firm offering proprietary funds that underperform in the market. Actually, don’t work with a firm that has proprietary funds at all. You’ll be pressured or forced to sell their underperforming funds to the detriment of your clients and yourself.
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