First Circuit Finds that Fidelity Was Not a Fiduciary When Negotiating and Charging a Fee to Mutual Funds

Giant 401(k) service providers like Fidelity have an array of products and fees.  Under ERISA’s fiduciary standards, this network of fees and costs have historically given rise to allegations that Fidelity was a fiduciary.  Historically, providers like Fidelity have often—but not always—been able to defeat such claims by demonstrating that it was not a fiduciary with respect to the action in question.

In Andre Wong v. FMR LLC, Fidelity was once again able to defeat a claim that it became a fiduciary when it charged an “infrastructure fee” to mutual funds that wanted to be included on Fidelity’s list of funds.   The plaintiff characterized this fee as a “kickback” and a “pay to play” scheme, but the First Circuit disagreed.  It concluded that Fidelity was free to negotiate contracts with mutual funds who wished to be included in Fidelity’s line up without running afoul of ERISA’s fiduciary rules or responsibilities.  Such agreements were distinct from Fidelity’s duties with respect to any particular plan, even if such fees might ultimately affect the returns that plan investors in the funds might receive.  Although Fidelity might be a fiduciary for some purposes, those roles were distinct and separate from the business negotiations Fidelity had with the mutual funds in question.