On the Wire: Mutual Fund Management Fees Case


On March 30, 2010, the justices of the US Supreme Court all agreed to send the Jones v. Harris Associates case back to the federal trial court. The issue is about how much stock brokers and others may charge investors for managing mutual funds.

In its unanimous decision, the Court said courts must use the standards outlined in Gartenberg v. Merrill Lynch Asset Management to figure out if mutual fund fees are too high. The key to that determination, according to Gartenberg, is fees must be fairly related to the actual services or "work" performed by fund managers.

In Jones, the trial court found the fees charged satisfied the Gartenberg rules. A federal appeals court disagreed and refused to use the Gartenberg rules, however, which led the Supreme Court to settle the matter.

Original Article

Investment gurus and market watchers are keeping their eyes on the nation's highest court for a ground-breaking decision about how much mutual funds can charge for "fund management" fees. The mutual fund industry advised that an unfavorable ruling could drive up fees and ultimately mean a loss for consumers.

The Jones v. Harris Case

In Jones v. Harris, investors argue that in excessive-fee cases, courts should consider that fees are charged to different categories of clients, consumer or institutional or larger clients.

The fund management company and supporters argue that it's far more expensive to manage mutual funds for individuals than for larger entities, such as retirement accounts and large-scale investors.

They also claim that a decision against them could mean the end for mutual fund managers because of the excessive burden and increased cost of running the fund.

Appeals Not Always Allowed

The U.S. Supreme Court each year receives thousands of Petitions for Leave to Appeal ("PLAs"), but the Court has the final decision about which cases it accepts. Of the total Petitions, the court accepts fewer than one percent (1%) for review. The Harris case is the first mutual-fund case the Supreme Court has heard in 18 years.

In the 1970s, Congress passed laws allowing lawsuits to be filed against fund management companies that the fees they charged were "excessive." Those who filed never won at trial. However, as with most civil lawsuits, the vast majority were resolved by settlement, and the dollar amounts of these settlements have been significant.

Bringing a Suit

An attorney specializing in class action or major financial suits can help you understand whether joining a class action or initiating a suit involving mutual fund fees or other investment fees is worthwhile. All cases have a "statute of limitations" period, or deadline, by which time suit must be filed.

A class action suit requires that the persons participating as plaintiffs and class members share basic characteristics or experiences which meet the elements of accusation.

If the case is between parties who are residents of different states and a high enough dollar amount is in issue, or if questions involving federal laws or constitutional rights are involved, the suit could be filed in a federal court. However, an attorney makes the final assessment of the best venue or place to file the lawsuit after considering all factors.

Questions for Your Attorney

  • What does this mean for the individual investor?
  • What is a fund management fee?
  • How much is an "excessive" investments fees?
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