State Farm Investment Management Corp. is being sued over alleged excessive fees it charges on five of its proprietary target date funds.
The five products, which are part of State Farm’s branded “LifePath” series of target date funds, are managed by BlackRock Fund Advisors.
More than $6.2 billion in assets are managed in the five funds in question. Investors pay a total of about $39.2 million in fees for all of the funds. About $21.7 million goes to BlackRock, and State Farm takes the rest, about $17.5 million, or 44 percent of all fees investors pay to buy into the funds.
The suit, Ingenhutt et al v. State Farm Investment Management Corp., which was filed in U.S. District Court for the Central District of Illinois, is brought by two individual investors claiming that State Farm’s share of fees is too high.
The plaintiffs acquired the funds through IRAs, not defined contribution plans.
Specifically, the plaintiffs allege that the amount paid to State Farm “is so disproportionately large that it bears no reasonable relationship to the services rendered (if any) in exchange for that fee,” according to court documents.
State Farm should not receive such a high portion fees, because “virtually all of the investment management functions” of the fund are delegated to Black Rock, allege the plaintiffs. Nor does State Farm provide and “day to day investment services” to the fund, they claim.
The 28 basis points that State Farm claims in fees is substantially more than other fund families, such as the JP Morgan SmartRetirement Funds. The plaintiffs claim that given State Farm’s limited role in managing the assets, its share of the fees should be closer to 2.4 basis points.
“In charging and receiving inappropriate compensation, and in failing to put the interests of plaintiffs and the other shareholder of the LifePath Funds ahead of its own interests,” State Farm Investment Management Corp. breached, and continues to breach, its fiduciary duties under the Investment Company Act of 1940, claim the plaintiffs.
The allegations are made against State Farm Investment Management Corp., and not against BlackRock Fund Advisors.
Comments from counsel representing the plaintiffs and State Farm were not available by press time.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
