Aon Hewitt is the latest company to attract accusations of a breach of fiduciary duty over its relationship with Financial Engines, the robo advisor founded by Nobel Prize-winning economist William Sharpe of Sharpe Ratio fame.
Specifically, Aon Hewitt Financial Advisors is accused of entering into a revenue sharing agreement in violation of ERISA “that resulted in collecting unreasonable and excessive fees at the expense of Caterpillar Inc.’s 401(k) plan participants,” according to a lawsuit filed Jan. 27 in the U.S. District Court for the Northern District of Illinois.
As Bloomberg BNA notes, this is the fourth lawsuit to target the fee arrangement for services provided by Financial Engines, with Xerox HR Solutions, Fidelity Management Trust and Voya Financial also accused. Despite having been named a plan fiduciary in these lawsuits, Financial Engines hasn’t been named as a defendant in any of them for the breach of fiduciary duty.
Aon Hewitt had a direct agreement with Financial Engines to provide investment advice to participants in Caterpillar’s retirement plan. The lawsuit alleges the fee for those services was significantly higher because Aon Hewitt required Financial Engines to kick back a significant percentage of the fees charged by the investment advisor, according to the news service.
In 2014, the business arrangement was “restructured and re-branded” so that another Aon Hewitt subsidiary directly charged to participants’ accounts the fees for those services, the complaint alleges. This re-branding was “cosmetic” and its only reason was to conceal the illegal kickback, the lawsuit alleges.
Financial Engines currently offers its services to 9 million people across 700 companies (including 147 of the Fortune 500). Massey & Gail LLP, Berger & Montague PC and Schneider Wallace Cottrell Konecky Wotkyns LLP represent the proposed class.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
