The United States Supreme Court granted a review involving mutual funds fees brought against Harris Associates, the advisor to the Oakmark Funds.
The Justices will hear oral arguments in the fall in Jones v. Harris Associates to decide whether the federal Investment Company Act limits the ability of investment advisors to charge higher management fees for in-house mutual funds.
The shareholders who brought the suit argued that the fees that Harris charges its mutual funds clients may not exceed those it charges its other clients; in this instance, Harris charged mutual funds shareholders twice the management fee it charged institutional clients.
A district court dismissed the claim which was affirmed by the 7th U.S. Circuit Court of Appeals. The plaintiffs told the Supreme Court that the standard for claims of breach of fiduciary duty under the law affects “millions of shareholders who have trillions of dollars invested in mutual funds.”
The test used by many courts (the Gartenberg test) is if the fee schedule is within the range of what would have been negotiated at arms length, then the fee schedule is not excessive and there is no breach in fiduciary duty.
The 7th Circuit Court rejected the Gartenberg test and replaced it with a simple requirement: transparency. This case demonstrates a growing concern of the abuses being rampant in the financial service industry
Richard J. Arsenault, 2011
