You might as well sue Mother Teresa for fleecing the poor. Vanguard is prominently featured in an excessive-fee lawsuit. May we live in interesting times.
Fresh off wins from Boeing, Tibble and a boatload more, tort terror Jerry Schlichter has zeroed in on a new target; Indiana-based health insurer Anthem Inc. On its surface, the class actions suit by Anthem employees alleging high fees is normal enough; there are plenty of industry sins for which plan sponsors, advisors, trustees, product providers and record keepers must atone, with Schlichter cast as grand inquisitor.
Here’s where it gets weird. Plaintiffs point to Vanguard as an example of high-priced share classes that they say Anthem used and therefore violated its fiduciary duty.
Weirder still, and with a hat tip to Morningstar’s John Rekenthaler, the language in the claim could have been written by Vanguard founder Jack Bogle himself (although we emphasize that Vanguard is not named as a defendant in the suit).
“Over time, even seemingly small differences in fees and performance can result in vast differences in the amount of savings available at retirement …a 1 percent difference in fees and expenses over 35 years reduces participants’ account balance at retirement by 28 percent,” the suit reads. “In this instance, however, the example of a 1 percent annual saving is disingenuous, as there’s no way to shave a full percentage point, or any amount remotely close, from the expense ratios of funds that are already far under that mark.”
We interviewed Bogle as recently as last August about the “tyranny of high fees,” his stock speech on which he’s banked his reputation since Nixon was president. It’s not that he strikes us as a man you wouldn’t want to anger, but rather one you wouldn’t want to disappoint. He has no qualms about going after the investment behemoth he founded when he feels they stray, and we can imagine the looks they’ll suffer as a result of this suit. They’ll simply be no living with him now.
While surreal, Rekenthaler adds that the suit appears correct. Vanguard had institutional Admiral Shares available for those funds, for which the Anthem plan was eligible. Schlichter’s tactics therefore make sense; use their own weight (and words) against them and make it clear no one is safe.
We’re meeting with Schlichter next week for a wide-ranging discussion. We know what’s first on the list. We’ll post the results.
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.
I believe a big part of this case is the big return differential 300bps+ from the Vanguard Money Market Fund and the Vanguard Stable Value Trust they should have had.
If you have $5 billion to invest perhaps mutual funds (retail products) are not the right way to invest. Even Vanguard funds. FYI Anthem does not have their billions of DB Pension assets in mutual funds.