Thanks to litigation, we will probably see one day where a mutual fund company will no longer offer their own proprietary funds in their employees’ 401(k) plan. Why? I think it make the mutual fund company too much of a target. Just ask the latest defendant, Wells Fargo.
Wells Fargo is currently being sued in a new class action lawsuit. The lawsuit claims that Wells Fargo “enriched” itself by including in-house target date funds which have underperformed and carrying fees 2.5 times higher than comparable funds.
The reason for a company like Wells Fargo to include their own funds in their 401(k) plan is probably more about pride than making money on the backs of their employees. How does it look if a mutual fund company doesn’t have their own mutual funds in their plan? It’s like a restaurant staff that orders takeout from another restaurant. It’s all about keeping appearances to people in the industry and investors who invest in their funds. However, appearances are costly. Lots of lawsuits against mutual fund companies over their 401(k) investments may eventually cure a mutual fund company’s concerns over pride.