As reported in Investment News 1, a group of employees at brokerage firm Ameriprise Financial recently filed a federal lawsuit alleging the firm stuffed its own company retirement plan with poorly-performing, high-cost proprietary mutual funds. The suit further alleges Ameriprise violated its fiduciary duty to retirees by restricting fund choices to only those managed by the company and its affiliates.
Employees cited, as an example, Ameriprise’s diversified bond fund offering—which costs 0.78% per year—as “some 71 basis points more than a comparable offering from Vanguard.” Plaintiffs say Ameriprise selected such funds as a way to earn more in fees, despite the fact such fees directly eat into investor returns. Employees allege they collectively lost more than $20 million related to high fund costs.
As long-time champions of low-cost investing, we can empathize with these employees’ frustration. But we believe there’s another story here which has gone unreported:
A little digging on Ameriprise’s website reveals that of all US taxable bond funds available to customers of the firm, the average cost is 1.08% 2. That’s 50% higher than the cost of the fund referenced in the lawsuit, and 15-times higher than the comparable Vanguard fund to which Ameriprise employees presumably wish they themselves had access.
This begs the question: When do customers of Ameriprise get to file their suit?
1 Mercado, Darla. “Ameriprise workers sue over company’s own 401(k) funds.” Investment News. September 29, 2011.
2 Ameriprise Financial Mutual Fund Finder. Average expense ratio for all no-load, Domestic Taxable bond funds.