Excessive fee lawsuits show no sign of abating as attorneys seize opportunities in inefficient asset management processes. New York Life is the latest casualty in the avalanche of litigation of excessive fee lawsuits and alleged fiduciary impropriety.
A class-action lawsuit filed on behalf of participants (Andrus et al v. New York Life Insurance Company et al) alleges self-dealing by New York Life and its affiliates related to the retention of a MainStay-branded S&P 500 index mutual fund in two company retirement plans.
The complaint claims that New York Life “improperly and unjustly benefited from the excessive fees and expenses.”
At issue is whether the firm should have removed the Mainstay S&P 500 Index Fund in favor of a non-related fund with lower fees, and therefore put the firm’s interest ahead of the participant’s interest going back to 2010.
Fees in the Mainstay fund are 35 basis points versus 2 basis points and 4bps for similar funds from Vanguard Group and State Street Global Advisors respectively, according to the filing.
Increasingly, managers and fiduciaries are coming under pressure from participants, backed by law firms targeting the use of proprietary products. Recent court decisions and awards are fuel for the litigation fire as law firms are virtually mining huge profits from the excessive fee lawsuits.
Excessive fee lawsuits were once thought to be an issue faced by larger plans, but recently there has been a rise in lawsuits against smaller plans too. And while court decisions have a high success rate, the number of out-of-court-settlements is also thought to be on the rise.
For the foreseeable future the number of filed cases is likely to rise and the end result will inevitably be downward pressure on fees. And while fees are not legally required to be cheap, but “reasonable”, the cost of an excessive fee lawsuit may for the hands of fiduciary to take the “cheap” road.
