Attorneys from the defendant’s bar warned about the potential effects of the DOL conflict of interest rule claiming that it opens the door for class action lawsuits which would ultimately hurt investors. A resolution seeking to block the rule passed the US House of Representatives which a group of US Senators have backed but experts believe that the rule will not be stopped with some provision set to go into effect in April 2017.
Because the DOL rule does not allow for provisions barring class action suits and because there is little case law on the subject yet, some predict that attorneys emboldened by recent success against 401k plans will seize the opportunity to file more class action suits. The results could be more costs for investors in 401k plans as well as those investing in IRAs and less access to financial advice for smaller accounts.
A Federal court recently dismissed motions to dismiss two class action lawsuits against Fidelity and Putnam based on excessive fees claims. Though the claims were for different issues, the themes and concerns by plan sponsors are the same – class action and excessive fees lawsuits are here to stay.
The really important take away is that the rash of 401k lawsuits is only growing especially if courts allow class action status which, according to the judge in the Putnam and Fidelity cases must show, “facts sufficient to state plausible claims…” All of which could lead to more settlements which lead to more cases.
While everyone is waiting for the dust to settle as broker dealers and advisors, most affected by the rule, scramble behind closed doors to figure out their next move, all it would take for plaintiffs’ attorney to get even more aggressive is a significant market correction causing investors to seek redemption which many experts believe will be in the form of 401k and IRA class action lawsuits made easier to win because of the new DOL rule.
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https://401ktv.com/class-actions-excessive-fees-lawsuits-survive-dismissal-claims/
