Labor Department Settles Case With Investment Advisers Inc. Over Fees Issues

Archived News Release — Caution: Information may be out of date.

The U.S. Department of Labor today settled a lawsuit on Monday, July 20, with Investment Advisers, Inc. (IAI), a Minneapolis-based investment management company, regarding inappropriate fees paid to its affiliate, IAI Securities (IAIS), in connection with investment management services provided to certain employee benefit plans and to its own in- house pension and profit sharing plans.

Within 30 days, the company has been ordered by the federal court in Minneapolis to pay $376,815 to its in-house plans and those of its individually-managed accounts which had plan assets invested in IAI’s Mutual Funds. The amount represents the Securities and Exchange Commission Rule 12b-1 fees paid by IAI Mutual Funds to IAIS on the accounts’ behalf plus any earnings which would have accrued to the accounts if the fees had not been paid.

Under the settlement, IAI also has agreed not to cause any Employee Retirement Income Security Act (ERISA)-covered employee benefit plan clients of the company to invest in such IAI Mutual Funds that pay 12b-1 or other fees to IAI, its affiliates, subsidiaries or other parties-in- interest unless the company is allowed to do so by a statutory exemption granted under ERISA or an administrative or class exemption under 29 U.S.C. section 1108(a).

SEC Rule 12b-1 fees are deducted from fund assets to pay marketing and advertising expenses or to compensate sales professionals. The lawsuit alleged that the company violated ERISA when it invested plan assets in its own family of mutual funds that paid the 12b-1 fees to its own affiliate.

The department’s lawsuit -- a first regarding inappropriate 12 b-1 fees --focused on the period from at least 1990 through 1996 when IAI’s management of employee benefit plans directed investments of these plans to their own in-house family of mutual funds, thus providing additional compensation to the company’s affiliate through the 12b-1 fees paid.

The investigation in this lawsuit was conducted by the department’s Kansas City Regional Office of the Pension and Welfare Benefits Administration into violations of federal pension law.

The complaint and consent judgment were entered in the court on July 20.

Herman v. Investment Advisers, Inc.
Civil Action # 98CV1722

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Archived News Release — Caution: Information may be out of date.

Contact Name: Sharon Morrissey
Phone Number: 202.219.8921