Class Action Excessive Fee Case Filed Against a Fund

August 11, 2015

Schneider Wallace Cottrell Konecky Wotkyns brought a class-action excessive fee case making Section 36(b) claims against State Farm Investment Management (State Farm), the adviser to the LifePath Funds, that alleges that State Farm charged excessive fees because it kept a large portion of the management fee, while the subadviser did virtually all the work. The funds are subadvised by BlackRock.

The relevant management fees for the LifePath Funds varied between funds from 102 basis points to 110 basis points, and after waivers investors paid 62 basis points or 63 basis points, or about $39 million annually. State Farm received $17.5 million in net management fees for the LifePath Funds, which comprises 44% of the total fees investors pay. The plaintiffs argued that this is too high since BlackRock provides virtually all of the investment advisory and portfolio management services. The plaintiffs further claimed that such fees are excessive and do not satisfy each of the Gartenberg factors.

The plaintiff’s complaint also criticizes director independence, noting that a truly independent board of directors would not have tolerated the complained-of fee assessment charged by State Farm if it had obtained adequate information. It further states that the directors of the LifePath Funds are materially dependent on defendant for information concerning the investment and fee structures that applies to the LifePath Funds. This had allowed State Farm, according to the plaintiffs, to unduly influence the various boards’ directorship of the LifePath Funds.

The plaintiffs seek unspecified damages and for State Farm to return the alleged excessive fees to the funds, among other things.


Investment Advisers, Investment Companies