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Sunday, October 23, 2011

Largest Employer of Certified Financial Planners Sued

In late September, six people, including a current employee, sued Ameriprise Financial on issues related to its 401(k) plan, as described by Lieber in "Financial Planner's Red Flags."  There are several ongoing suits against 401(k) plans on the basis of cost and performance results.  This, to my knowledge, is the first suit brought against a financial services firm by its employees - those who sold its products!

Sadly, this occurs despite the voluminous evidence that actively-managed funds underperform over the longer term after fees. By choosing actively-managed, highly touted funds that have had superior performance in the past, participants are playing what Charles Ellis refers to, in the Wall Street Classic,  as "The Loser's Game."

In the Ameriprise suit, the plaintiffs argue that the plan is "stuffed" with high-cost, poor-performing funds managed by the company.  Lieber's piece details some of Ameriprises' history that gets me to wonder why, frankly, people do business with them.  But, then again, this is true of many of our largest financial services organizations.  They participate in every sleazy financial event that comes along from doing illegal barge, earnings manipulating, buybacks with the likes of Enron to pushing inappropriate derivatives on unsophisticated municipalities.  And yet people trust them with their money!

I understand that there are always a few bad apples in a large organization, especially when compensation is determined by product sold and there are huge incentives to put clients in inappropriate investments.  This is not what this is about.  It is about the culture of these companies.  They exploit the lack of knowledge of consumers and, in the end, create problems for the country by putting people's retirement at risk.

The article points out:

It has to be frustrating for Ameriprise to see its menu of mutual funds splayed out for all of the world to see, complete with details on poor performance and a handy chart showing fees that are three to five times what they are at Vanguard.
I, for one, have no sympathy.  Thankfully, fee disclosure is on the way next year for all 401(k) providers.

Along with many others, I recommend individuals do considerable research and at least compare the approach of fee-only, independent advisors.


  1. Those are some great recommendations at the end. A lot of pain could be avoided if people would only invest in things that they truly understood.

  2. I read about this! The irony is amusing!

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