Were You Overcharged Mutual Fund Fees By Fidelity?

The Wall Street Journal reported that Fidelity Investments is the subject of a Labor Department probe and a lawsuit by an investor in a T-Mobile 401(k) plan, regarding the disclosure of an “infrastructure fee” it charges mutual funds for using their FundsNetwork asset management platform.

The lawsuit claims that Fidelity conceals the fee, while Fidelity says it fully discloses all fees it charges.

Fidelity charges the fee to third-party mutual fund firms who use their FundsNetwork. Firms can either pay the fee themselves or pass it on to their customers.

According to the Journal, the fee at issue is 0.15% of total assets in a 401(k) plan. 0.15% may not sound like a lot, but over time that can significantly eat into a person’s returns.

Fidelity spokesman Vincent Loporchio said in a statement “We make thousands of non-Fidelity mutual funds available to 401(k) plans for which Fidelity acts as recordkeeper, as well as to other Fidelity customers…We receive a fee from some of those mutual fund companies to compensate us for maintaining the infrastructure that is needed to make those funds available… It is costly to maintain this kind of infrastructure and Fidelity is entitled to be compensated for those costs.”

The Labor Department regulates investments and costs related to workplace savings accounts, including 401(k)s. There has been an effort to increase transparency regarding revenue-sharing agreements between savings providers and to reduce the high fees charged.

In recent years investors have been trending toward putting their money into index funds, which have low expense ratios since they are not actively managed. So this infrastructure fee is a way for Fidelity make up for lost revenue. However, that doesn’t mean they are exempt from disclosing it.

Fidelity’s actions may be a violation of the Employee Retirement Income Security Act (ERISA) of 1974’s disclosure rules. The plaintiff in the T-Mobile case against Fidelity claims “ERISA prohibits the infrastructure fee and that Fidelity incentivizes mutual funds on its platform” to conceal the fee.

If you had an account with Fidelity and believe that you were charged an infrastructure fee that wasn’t disclosed to you, we’d like to hear from you. Relevant funds may include Eaton Vance, Nuveen, PIMOC, Thrivant Financial for Lutherans, and others.

Silver Law Group is a nationally-recognized securities law firm headquartered in South Florida representing investors worldwide with their claims for losses due to securities and investment fraud. The firm has successfully recovered multi-million dollar awards for its clients through securities arbitration and the courts. To contact Scott L. Silver to discuss your legal matter, call toll-free (800) 975-4345 or e-mail him at SSilver@silverlaw.com.