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Fidelity “Infrastructure Fee” Lawsuits

Fidelity is the named defendant in several lawsuits in which participants in retirement plans recordkept by Fidelity claim ERISA infractions due to undisclosed and unlawful fees to “certain business partners.”

At issue is Fidelity’s Funds Network, offered to retirement plan clients for which Fidelity is the recordkeeper. The lawsuits allege that investment management companies participating in Fidelity’s Funds Network are required to pay what Fidelity refers to as “infrastructure” fees as a condition of offering investments to Fidelity clients, in violation of ERISA prohibited transaction rules. More specifically, the lawsuits state that Fidelity requires such payments for continued “shelf space” within the Funds Network, in cases in which disclosed revenue sharing payments from the participating Funds Network companies fall below Fidelity’s thresholds. Further, the lawsuits allege that such payments are indirect compensation, thus requiring disclosure, allegedly not provided by Fidelity. Fidelity also allegedly prohibits participating Funds Network fund companies from disclosing the payments. The origination of such kickbacks is claimed to be the decreased revenue sharing that Fidelity receives resulting from the increased use of passively managed funds, which offer little if any revenue sharing.

The lawsuits have triggered both DOL and Massachusetts Secretary of the Commonwealth investigations.

www.planadviser.com; February 22, 2019.
www.pionline.com; March 20, 2019.
www.plansponsor.com; April 8, 2019.