Fidelity 401(k) Price-Fixing Scheme Cost Retirement Savers Plenty

Bigger does not necessarily mean better. The Wall Street bullies have taking advantage of investors for far too long. Relying on Wall Street to take the best interest of the client first is a very dngerous strategy.

The plan proposed the most complex highway interchange attempted in Ontario to that point. (Photo credit: Wikipedia)

Employers that hire Fidelity to provide 401(k) administration have always been told they can freely choose between Fidelity and non-Fidelity funds as investment options.  In my experience, freedom to choose, in industry parlance “open architecture,” rarely truly exists. 401(k) plan administrators or record-keepers almost always attempt to steer clients into proprietary products and services. The challenge for employers and participants is to understand the unique devices different plan administrators employ to lead clients into their own funds and the related dangers.There’s a lot of blame to go around for the failure of 401(k)s to achieve their even limited potential to provide retirement security to workers. Investors should not rush to conclude that they or unforeseen market forces are entirely to blame for the poor results of their 401(k) accounts.  I can assure you that there have been longstanding 401(k) abuses that have been concealed from employers and participants by the industry. Even regulators have failed to grasp the extent of industry skimming.

In a truly competitive environment, with the requisite transparency, Fidelity’s policy of capping 401(k) revenue sharing would have had economic consequences. The fact that it did not reveals that in the retirement plan industry, pricing machinations are not readily apparent.

Plan sponsors should begin to realize that the ‘big’ providers do not have their best interest in mind when making recommendations.

Please comment or call to discuss how this might affect you and your organization.

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