Insight on The Fidelity 401(k) Debacle

fidelity-investmentsA couple of weeks ago, it was announced that a group of former employees of Fidelity Investments, one of the country’s largest providers of retirement plans, was suing the financial giant. The employees alleged that the retirement plan they were being offered by their employer was largely made up of high-priced Fidelity mutual fund options. The lawsuit goes on to say that the employees were not offered the choice of lower-priced options, which Fidelity had available from other providers.

From an outsider’s perspective, it might seem as if the Fidelity employees are just being a bunch of whiners. After all, the 401(k) that Fidelity offered appears quite generous and includes a dollar-for-dollar match of up to 7% of each employee’s salary. It also give employees 150 options from which to choose. However, upon closer examination, it becomes apparent that things don’t quite add-up. In fact, the employees who are part of the class action lawsuit assert that every single option in the plan is managed by Fidelity, many of which carry high fees…much higher than comparable offerings elsewhere. Additionally, some of the options offered do not even have proven track records or are known for their less than positive performance.

At the heart of the complaint is something called “fiduciary duty” (the employer’s obligation to provide options that serve the best interest of the employee). While employees feel that Fidelity is operating outside of its fiduciary duty, Fidelity suggests just the opposite. A case can be made for the fact that Fidelity offers these funds to clients, so it seems logical that they are also offered to employees. But, in the same light it does seem a bit self-serving on the part of Fidelity, making money not only from the client but also the employee. No matter the outcome, it is safe to say that this is not the first or the last time we will see these types of fiduciary legal concerns (in 2011, Wells Fargo settled a similar class action lawsuit to the tune of $17.5 Million).

So what is the lesson in all of this? First and foremost, as a consumer, it is important to remember that you have rights. And secondly, your financial adviser has a responsibility to provide the best options available. Because of this, we strongly suggest working with an advisor who is up front about their intentions – preferably a fee-only provider who does not receive commissions or kick backs for their recommendations. Only then can you be assured that what you are offered is in the best interest of your financial goals and objectives.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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