Hidden Costs – Revenue Sharing and Self Dealing

Your friendly neighborhood wire-houses like Edward Jones, Morgan Stanley and others have seen a outbreak of lawsuits by their own employees over hidden 401k fees. The key issue behind the lawsuits is that the brokerage firms profit from the plan’s investments by retaining for itself revenue sharing payments paid by product partners and self-dealing. In other words, the employees are investing in funds where the employer, e.g Edward Jones, receives financial benefits from the fund family. This amounts to millions of dollars in so-called “revenue sharing” payments from their “partners” or “preferred partners”.

How Much Money are We Talking About?
From the employee lawsuits filed and settled, here’s a quick summary:

Edward Jones – $13 million in excessive fund fees and $8 million excessive record keeping fees from August 2010 to present.
Morgan Stanley – $150 million in excessive fund fees from 1/11 to 4/14.
New York Life – $3 million in excessive fund fees from 2010 to present.
Mass Mutual – $31 million settlement to employees over fees.
Ameriprise – $27.5 million settlement to employees over fees.
Fidelity – $12 million settlement to employees over fees.

Given the recent lawsuits (and more sure to come), it’s no surprise that the brokerage industry is suing The Department of Labor over its decision back in April that broadened the definition of a fiduciary to anyone who receives direct or indirect compensation for providing advice to retirement plans, plan participants or beneficiaries and IRA owners.

There’s enough money changing hands behind these 401k plans to make International Olympic Committee executives envious.

Here’s a Fee Disclosure Form that will ferret out Hard Dollar Fees, Soft Dollar Fees, Revenue Sharing and Direct/Indirect Compensation that is otherwise very difficult to get disclosed. https://brownwm.com/the-f-word/types-of-advice/