Compliance

Adviser Dismissed From BB&T Self-Dealing Litigation

While the advisory firm has now been dismissed from the pool of defendants, the wider case itself will still apparently move forward.

By John Manganaro editors@plansponsor.com | April 25, 2017
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Often when a retirement plan participant files suit against a plan sponsor, investment manager or recordkeeper, the advisory firm gets dragged in as well.

This was the case in Bowers vs. BB&T, a lawsuit filed initially in 2015 in the U.S. District Court for the Middle District of North Carolina. The case is not to be confused with a similar lawsuit, Smith vs. BB&T,  filed in the same court right around the same time.

Plaintiffs in the Bowers litigation include participants in the BB&T Corporation 401(k) Savings Plan, and they accuse their employer of “self-dealing and imprudent decisionmaking in the management of its retirement plan.” As the initial and amended complaints lays out, in the opinion of participants, “BB&T does not act in the best interest of its employees and Plan participants. Instead, BB&T treats its 401(k) plan as an opportunity to maximize company profits at the expense of plan participants, by (among other things) charging plan participants excessive fees and then recouping those fees as profits.”

While the advisory firm has now been dismissed from the pool of defendants, the wider case itself will still apparently move forward. Similar to the targets of other “self-dealing suits,” case documents show BB&T is the plan’s sponsor, recordkeeper, custodian, and primary investment manager. Plaintiffs argue the arrangement is rife for conflicts of interest.

With their end-to-end control of plan services, plaintiffs argue that “defendants have loaded the plan with high-cost mutual funds run by BB&T’s wholly-owned subsidiary, Sterling Capital, which is also a participating employer in the plan. Sterling Capital then pays a large portion of the investment management fees it receives back to BB&T, ostensibly for the recordkeeping and custodial services that BB&T provides to the Plan, but in actuality the payments are two to three times greater than the costs BB&T actually incurs to provide those services. The rest is profit.”

Further, BB&T fiduciaries are accused of “mismanagement that … extends beyond their failure to adequately control plan costs. Defendants have also failed to remove poor performing investments from the plan, in breach of their fiduciary duties. For example, the BB&T Large Cap Fund has been a poor performing mutual fund for decades.”

NEXT: Role of the adviser 

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